HOA payment plans help homeowners settle their outstanding balances and avoid foreclosure. For associations, these plans support collection efforts and maintain a positive cash flow. But navigating the ins and outs of payment plans, particularly in Texas, can be challenging for volunteer boards.
What are HOA Payment Plans?
In HOA and condo communities, payment plans are installment plans that allow owners to catch up on their unpaid dues. These plans offer a structured way for associations to collect delinquent fees while setting reasonable terms. For homeowners, these plans let them avoid liens and foreclosure.
Are Texas HOA Payment Plans Required?
According to Section 209.0062 of the Texas Property Code, associations with more than 14 lots must create rules that allow owners to set up a payment plan when they fall behind on dues and assessments. This gives them the opportunity to catch up and avoid further penalties.
Even if an HOA isn’t required by law to offer payment plans for late HOA dues, it is still a good idea to make them available. Homeowners should approach their board or manager, explain the reason behind the financial hardship or difficulty in paying dues, and ask to enter a payment plan.
Rules on HOA Payment Plans in Texas
Texas law further expounds on payment plans under Section 209.0062. For an HOA offering payment plans in Texas, these are the rules and requirements to follow.
1. HOAs Must Offer Payment Plans
As previously mentioned, if an association has 15 or more lots, it must adopt guidelines for HOA payment plans. These plans allow owners to pay overdue fees in installments rather than in one lump sum, making them more manageable.
2. No Extra Penalties
Texas law prohibits associations from imposing additional monetary penalties while an owner is on a payment plan. That said, the HOA can still charge interest or administrative costs related to the plan.
3. Minimum Plan Duration
According to Texas law, payment plans must last at least three months. Associations may not offer plans shorter than three months, as it wouldn’t be much of an installment.
That said, there is no requirement for associations to offer very long plans. An HOA is not required to allow a plan that lasts longer than 18 months, but it can still be an option.
4. No Repeated Offers
Payment plans are great for dividing overdue balances into manageable installments, but there’s also a risk that owners may abuse them. To counteract this, Texas law states that associations may deny an owner’s request to enter a payment plan if the owner has defaulted on a previous plan within the past two years.
Additionally, to limit HOA payment plans, if an owner has used a plan within the past 12 months, the board may refuse to offer another. This discourages owners from defaulting solely to catch up using payment plans.
5. Not Required After Deadline
Payment plans may not be available after certain enforcement deadlines. If the deadline for curing a delinquency has already expired under Section 209.0064, the HOA need not offer a payment plan to the owner.
6. Recorded Guidelines
Association boards must record their payment plan guidelines and file them with the county real property records when the subdivision is located. This ensures clear documentation of the rules.
That said, homeowners may still request a payment plan even if the board forgot to file its guidelines. An oversight like that shouldn’t prevent an owner from entering a plan.
Precautions to Take When Offering HOA Payment Plans
As with most financial decisions, payment plans come with risks. Fortunately, board members can limit exposure to these risks by taking certain precautions.
1. Ask for Proof of Financial Capacity
Associations should request evidence that a delinquent owner has the financial ability to settle their unpaid HOA assessments through a payment plan. They don’t have to have the full sum ready, but they at least need to be able to pay the monthly payments.
2. Put the Agreement in Writing
Payment plans should never be confined to verbal agreements. Boards must document it in a written, signed contract. This contract holds the delinquent owner accountable for the installments and outlines any consequences they may face for defaulting on the plan.
Details must include:
- Terms and conditions
- Monthly payment amounts
- Due dates for each monthly payment
- Charges for late payments
- Waiver of previous late fees (or lack thereof)
- Payment methods
While traditional checks or cash work fine, it is a good idea to set up automatic withdrawals for HOA payment plans. This helps ensure the owner stays true to the plan and prevents another default.
3. File a Lien Anyway
Liens are a common way associations settle overdue fees in Texas. While this option is more aggressive, it is also usually more effective. Liens make it more difficult for owners to sell their homes or refinance their mortgages. Furthermore, associations can choose to foreclose on the lien and use the sale proceeds to settle delinquent amounts.
Even if an owner enters a payment plan, it’s best to file a lien anyway. Most liens automatically attach to a home once an owner becomes delinquent.
Filing a lien ensures the association has priority in the event the home goes into foreclosure. Keep in mind that the HOA may not be the only creditor. If an owner has trouble paying their dues, it’s likely that they can’t keep up with mortgage payments, too. If a lender takes legal action and initiates foreclosure, a lien protects HOAs.
A Two-Way Street
There are many ways an association can collect unpaid dues, and HOA payment plans are one of them. While they come with certain risks, payment plans are beneficial to both parties. They give owners a chance to settle debts, while associations can still maintain revenue. After all, installments are better than nothing at all.
Graham Management offers exceptional HOA management services to Houston communities. Call us today at (713) 334-8000, request a proposal, or contact us online to learn more!
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