Collections

Turning up the Heat on HOA Collection Practices

Published on: May 26, 2011 | by Steven J. Tinnelly, Esq.

The increase in assessment collection efforts by Homeowners Associations (“HOAs”) is being seen nation-wide. States like California, Nevada and Texas are currently debating new legislation aimed at making some drastic, and potentially harmful, reforms to the ways in which HOAs can pursue and collect delinquent assessments.

In California, there is a proposed bill that would significantly affect a HOA’s ability to collect delinquent assessments. SB 561 will, in a nutshell, make it much more difficult for a HOA to recover the collection costs and fees incurred in connection with collecting delinquent assessments. There is signficant industry opposition to the bill.**

Additionally, some property owners are beginning to take a more agressive stance against HOA collection efforts. In Nevada, investors in foreclosed homes recently filed a new class-action complaint against more than 500 Nevada HOAs. They allege that HOAs have unlawfully allowed collection companies to collect costs that were never incurred by the HOAs.

New legislation and legal challenges concerning HOA collection practices could radically impact the financial and operational structure of HOAs and collection companies. Hopefully, the increase in attention will help to (1) spotlight the tremendous toll that delinquencies are taking on HOAs and (2) provide a clear, settled framework for HOAs to use in their collection efforts.

**To read more about industry sentiments toward SB561, visit CAI’s California Legislative Action Committee’s website.

Credit Card Processing of HOA Assessments: Good Idea?

Published on: May 17, 2011 | by Steven J. Tinnelly, Esq.

Associations are required to levy regular and special assessments sufficient to perform their obligations under their governing documents and Ca. Civ. Code §1366(a). Associations may encounter difficulties in getting their members to pay assessments on a regular and timely basis. In response to these difficulties, some Associations are providing credit card processing of assessment payments as a courtesy to their members and/or an incentive for delinquent members to fulfill their assessment obligations while deferring the actual payment. The fees involved in processing assessments by credit card are then sometimes absorbed by the Association.

Several Managers and Board members have contacted us regarding the propriety of absorbing these fees.

We have prepared an article on this issue which is available for download from our Library. The article is entitled “Absorbing Credit Card Transaction Fees”.

In sum, absorbing these fees is problematic because (1) it results in an inequity for the Association’s members that pay their assessments by cash or check and (2) likely violates the assessment requirements of the Association’s CC&Rs. Associations that provide credit card processing of assessments should ensure that the members paying by credit card are responsible for any transaction fees and costs involved.

For a more detailed discussion of this issue, click here to read the article.

To submit questions to Tinnelly Law Group, click here.

Short Sales and Delinquent Assessments

Published on: May 5, 2011 | by Steven J. Tinnelly, Esq.

*Asked & Answered

This economic downturn has dealt a serious blow to the assessment revenue of Associations throughout California. Almost every Association is dealing with several delinquent homeowners. One Board Member recently submitted a question on our site asking what happens to an owner’s delinquent assessments if the owner sells his property in a short sale.

In an effort to avoid foreclosure, an owner may elect to sell his property in a “short sale” by selling the property for less than is owed on the mortgage. Because the lender will take a loss on the property, the lender ‘s approval is required before the sale can take place.

Any outstanding liens on the property must be satisfied for the sale to proceed. Provided that the Association has liened property for the delinquent assessments, then it stands in a strong position to recoup at least some money.

Though the Association is under no obligation to release its lien, it should realize the benefit of having a new, dues-paying owner in the property. The Association should negotiate with the parties involved by seeking contribution from the lender, buyer, and realtors in exchange for the Association waiving some of the late fees and interest that may have accrued on the outstanding assessment amount. This type of reasonable approach will (1) help the Association recover at least some money, (2) provide the Association with a dues-paying owner, and (3) help prevent the new owner from harboring resentment for the Association.