What happens if i dont pay association fees

Among the HOA's main obligations is to maintain, repair, and replace the common areas. One issue that can cause homeowners to stop paying their dues is that they feel they're excessive, or they literally can't afford them.

The HOA calculates the amount of dues it needs to collect based on its annual budget, after estimating the ongoing operation and maintenance expenses for the common areas. These costs might include such things as landscaping services for common parks, or power and water bills for a common clubhouse. The budget might also create a reserve fund for anticipated common area repair and replacement costs which might cover such items as repairing broken fitness equipment or replacing rusted furniture around the common pool.

Typically, the HOA divides dues equally between all homeowners in a development, although in some developments dues are allocated based on the relative size of owners' properties. This is more common in condominium developments, where, for example, the owner of a 4, square foot penthouse unit might pay proportionately more than the owner of a square foot studio unit in the same building.

Dues are typically collected semi-annually, quarterly, or monthly. Sometimes, an HOA cannot collect all the dues needed to meet the budget, because of late-paying or nonpaying home owners. If the HOA cannot collect enough to maintain, repair, and replace items in the common areas, conditions in the development might quickly start to go downhill.

For example, the common pool might become too dirty to swim in, the fitness equipment might break down and become unusable, and the lights and heat in the clubhouse might get turned off. The value of the development as a whole, and each of the properties within it, will eventually drop. To avoid such a scenario, the HOA may raise the amount of periodic dues, and possibly levy special assessments. So, as a result of your neighbor's delinquencies, you could be hit with higher costs.

Because an HOA has the right to raise dues and collect assessments to keep the common areas maintained and operating, an HOA will rarely go bankrupt. However, if dues and assessments get too high, homeowners in the development might find it too expensive to live there. The result is many homeowners might sell, or, even worse, abandon their homes and leave the development. Unfortunately this scenario has occurred many times over the years, when numerous owners were upside-down on their mortgages.

A development where the dues and assessments are sky-high due to a lack of paying homeowners is unattractive to home buyers.

Properties that fall into foreclosure do not help the problem. Although banks owning foreclosed property are required to pay dues and assessments themselves, they are notoriously reluctant and slow to do so.

In the worst-case scenario, the development could spiral into insolvency, abandonment, and dissolution. As an individual homeowner, you might not have a lot of power to get delinquent neighbors to pay up.

In fact, you probably cannot even find out which owners are delinquent. Although if asked , the HOA might disclose the total amount of dues in arrears, they likely will not name names. In certain states, even if you ask to take a look at the HOA's records which, as a homeowner, you likely have the right to do , privacy laws prevent the HOA from releasing any information about particular homeowners or properties. However, board members have a fiduciary duty to look out for the association's collective interests.

Your association needs to collect these dues to maintain everyone's investments and quality of life. Failure to collect these dues, in addition to failure to enforce the terms of your bylaws, is a violation of your fiduciary duty to your association. It's not just the association's immediate cash flow that's at stake: If an HOA or condo association fails to enforce the payment of dues, Fannie Mae will.

That will make it very tough to sell units and will lower property values across the board. Most HOAs provide a reasonable grace period for the payment of dues. They may be due on the first of the month but have a grace period of 5 to 15 days before the board starts taking enforcement action.

This can save your staff a lot of extra work in chasing down payments from residents who simply have irregular income. If there's a faithful payer who's always late for this reason, you can, of course, work with this individual within reason. Always send reminder and collection notices as scheduled to all association members. Do it by registered mail, if need be, so that you have a record of doing so. This preserves your right to enforce in the future, as nobody can dispute a future collection action by claiming selective enforcement.

You can produce the record of correspondence with the late payer to shut down this possible objection. However, be sure to enforce prompt payments. Whatever your grace period may be, you should have a meaningful incentive to get people to meet it: A late fee.

It should be enough to make owners wince, but not enough to prevent payment. The best way to deal with someone with a temporary hardship is to work out a payment plan. The plan should accomplish three aims:. Anything over 12 months is probably too much of a risk for the board. If it really takes the owner more than a year to pay off a couple of months of back dues, is this someone the association can rely on if there's a special assessment in the future?

For any case not specifically covered by a payment plan that's been approved by the board of directors, it's vital to be very consistent and methodical in following your procedures. If you blow any step along the way, you may set back your timeline for being able to collect or, in the worst-case scenario, foreclose.

You might also compromise your ability to conduct future collections, and could potentially even give the delinquent member an actionable complaint against you. The problem is most acute where the board has to impose a special assessment because of an emergency, because reserves were not sufficient to cover the need, or because the board accidentally left a gap in its insurance coverage. People tend to budget for monthly dues. They can't budget for special assessments—that's what makes them special.

So if your board imposes a special assessment, you should anticipate a few people who can't merrily write a check at the moment, for whatever reason. Fees can differ even within a development, due to variations in square footage, location, and orientation, all of which can affect how much upkeep the property will require. You should also find out how often fees have increased over time, and by how much.

If you can, obtain a printed history of HOA dues by year for the past 10 years. Martinez says that the fees for an HOA are typically increased no more than annually.

Since they're only estimates, Martinez suggests you also check the amount by which fees are permitted to increase every year under the HOA's bylaws.

In a new complex, that research can help determine whether initial HOA fees have been attractively, even artificially, underpriced in order to attract homeowners and are liable to increase significantly over time to cover the gap between revenue and costs.

The precise rights, services, and amenities for which the HOA is responsible may range as widely as the fees being charged. Look at what is included and not included that will affect your household finances. Will you have to pay for garbage pickup, for example? Are utilities included? Which ones?

Line up the fees—and their inclusions and exclusions—against those of other developments in the area, especially those that are already on your shortlist. An HOA may adopt one of several approaches to financial management. These choices especially affect how it funds unexpected expenses and such capital investments as replacing an HVAC system.

Here's how the assessment route works: When a major expense, such as replacing a roof or elevator, comes up—and the HOA's reserves lack the funds to pay for it—the association may charge each homeowner a special assessment.

These levies can run into thousands of dollars. Developments often draw up multiyear plans for repairs and capital investments, including their annual costs and the expected balance in the reserve fund at the time the outlays will be required. Ask to see those documents, paying special attention to how well the needed expenditures line up with the balance of the reserve fund. Professional help can be valuable when poring over these spreadsheets. His company's, Manning says, is to "have the clients discuss the financial statements with a CPA [who is an] expert in analyzing [developments'] financials.

The HOA should be able to provide such a list. Ask, too, if any special assessments are planned in the future. Note that economies of scale may mean that special assessments for a certain capital expense may be smaller in HOAs that have many members and higher in smaller HOAs, where a similar expense will have fewer homeowners to fund it.

When contemplating a property purchase in a planned development, you'll of course factor the impact of its HOA dues into your overall finances. So, too, will prospective mortgage lenders. As a result, you may wrestle with vexing tradeoffs as you decide among properties. Higher HOA fees could leave you with a smaller approved amount to spend on your house compared with choosing an alternative property with low or no fees.

Interestingly, the presence of fees doesn't necessarily reduce the value of a property; if anything, there's evidence of the opposite effect. Your prospective lender can provide the mortgage-payment figure, and you should already have the property-tax and HOA-fee numbers.

Alternatively, many online mortgage calculators, including the one we linked to above, also allow you to request quotes from mortgage lenders on rates and maximum approved amounts. Since the rules and regulations of any particular HOA may be unique, don't rely on second-hand information or past experience at other developments to learn what an HOA's rules and covenants are.

Be sure to check if the document is up-to-date before you proceed too far into the buying process. You could find you're restricted in more ways than you might assume.

If environmentally friendly living is a personal priority, check the HOA's green provisions, beginning with what can be planted around your home, and how that vegetation may be maintained. For example, some HOAs do not allow xeriscaping, an environmentally friendly form of landscaping for arid climates, and may limit the size and composition of any garden you plant. The rules may also dictate the use of particular fertilizers, pesticides, or sprinkler systems to maintain the yard and ban the likes of compost piles and solar panels.

Check for any language that might prevent you from, or even just complicate, renting out your property. As in any community, disagreements arise within a planned development, sometimes over certain residents bending or breaking the rules.

Before you buy, explore how rules are set and enforced and what penalties are imposed against rule-breakers. Sanctions can be strict. Ask about the process for resolving any conflicts, as well as how the HOA manages additions to or amending the rules. Request a list or other accounting of conflicts and rule violations the association has had to resolve.

Be sure to check for any past, present, or pending lawsuits in which the HOA is involved. Also, review the outcome of any such cases. Since the association essentially serves as a hyper-local government for the community, it pays to look into who runs it and how well those people function together.