For one reason or another, some homeowners have no choice but to skip on their dues, making their accounts delinquent. But to keep the association’s finances sound, you still need to collect those payments. One way to do this is by offering HOA payment plans for delinquent accounts.
What are HOA Payment Plans?
When a homeowner defaults on their HOA dues, it’s commonly due to financial struggles. An HOA payment plan is an agreement in which a resident with a delinquent account agrees to settle unpaid dues to the HOA according to a schedule. Simply put, it’s an installment plan that helps homeowners pay for dues in smaller, more manageable chunks.
Should HOA Delinquent Payment Plans Be Offered?
If done properly, HOA payment plans can benefit both the homeowner and the association. It gives the resident the opportunity to fulfill their obligations to the HOA. Meanwhile, the HOA can receive the right funds it needs to operate.
While this sounds like a win-win situation, a lot of HOAs are also apprehensive about offering payment plans to delinquent homeowners. Should it be offered?
This actually depends on where you are. Some states have provisions on offering payment plans for their residents. For example, Colorado law requires HOAs to offer payment plans to homeowners who default on their accounts. Another example is California, where associations are required to offer it if the homeowner submits a written request for it.
If your local laws don’t have provisions for the issue, you should check your HOA’s governing documents. Usually, provisions related to the matter are found in your CC&Rs and bylaws, including how you can do it and a schedule of doing so.
It is also possible that your governing documents don’t mention HOA payment plans. If your HOA is open to offering it to residents, consider amending your CC&Rs and bylaws. This is best done with legal counsel to ensure the governing documents remain sound and consistent.
The Basic Formula
If you decide to offer HOA payment plans, you also need to know how to implement them. For this, there is a simple formula involved. To lay out your payment plan, you must first determine the total amount a resident owes and the number of installments or months. Divide the total amount by the number of installments to find out how much each payment would cost.
After determining the amount of each installment, you need to create a written agreement that both the HOA and the homeowner will sign. It should include critical details, including:
- A statement from the homeowner as to why he/she defaulted. Usually, this is an admission that the resident is struggling financially.
- The total amount owed (which may or may not include late fees)
- How many installments are planned
- How much the homeowner needs to pay per month/installment
- A declaration that the HOA has the right to pursue other methods of collection if the homeowner fails to follow the plan.
How to Minimize Risk for the HOA
Entering into an agreement, such as an HOA payment plan, can expose the HOA to some risk. In particular, the homeowner may not follow through on the agreement. Given this possibility, the HOA needs to take precautionary steps.
- Filing a Lien: Before even thinking about offering a payment plan, the HOA should first file a lien when a resident’s account becomes delinquent. This helps ensure that the HOA would be a priority in the event that a creditor would pursue legal action against the homeowner. Doing this would protect the association from large financial losses.
- Obtain Proof on the Resident’s Ability to Pay: When deciding to offer an alternative payment plan, HOAs should do their homework. They need to verify that the resident can make the installment payments before they sign an agreement. HOAs should ask the homeowner to submit a financial plan as proof. Requesting proof of capacity, such as credit reports and pay stubs, is also possible.
- Put the Plan in Writing: Always have a written agreement for the payment plan. Never just do this verbally. This protects your HOA from financial losses as you can provide documentation of the agreement.
Tips to Prevent Delinquent Accounts
They say prevention is better than finding a cure. This also applies to HOA collections and finances. It’s easier to prevent accounts from becoming delinquent than to find a cure for them.
There are several ways your HOA can prevent or at least minimize delinquent accounts. Here are some to keep in mind.
Autopay Enrollment
A lot of HOA members have their own lives to run, and some of them can be very busy. For people who have trouble staying on top of payment schedules, you can offer automatic payment enrollment.
This mode helps minimize missed HOA fee payments due to forgetfulness. You can promote this option at HOA meetings by providing enrollment forms and additional information.
Numerous Payment Channels
In addition to automatic payments, you can offer multiple payment options for homeowners. You can offer anything from bank transfers to digital payments to online payment portals, among others. Offering these increases convenience by letting residents choose a payment option that suits their time and circumstances.
Being Proactive with Homeowner Accounts
Having a single payment that is only a few days late doesn’t automatically make a resident’s account delinquent. However, the HOA needs to stay on top of it. More missed payments mean more HOA fines and late fees. These cause the homeowner’s total amount owed to balloon. If they are struggling financially, it becomes harder to recover over time.
In such cases, the HOA needs to stay proactive. They could find options to help the homeowner catch up on missed payments before the amount becomes too high.
Fund Transparency
HOA dues fund the day-to-day operations of the association and the community. While most residents know this, they sometimes gloss over how important that is for their lives. To this end, HOAs should inform homeowners about the importance of HOA funds.
One of the best ways to do so is to be transparent about the HOA budget. Tell the people where their money is going. This makes them aware of how the funds are used while building trust with the HOA board.
Timely Communications
When handling late notices, the HOA should send them out promptly. Late notices should be sent around 15 days past the due date. If the first notice is sent out months later, it may signal that the HOA tolerates late payments. Sending out a timely reminder lets residents know that it takes these responsibilities seriously.
Offering Flexibility
HOA payment options can benefit both the HOA and homeowners. However, for it to be done properly, the association must do its due diligence to avoid financial losses. It must actively work with homeowners while implementing precautions to protect itself from risk.
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