In a planned community, HOA late fees serve as a way to encourage on-time dues payments. That said, not all associations can charge late fees, and there are certain conditions that may be placed upon the board by its own governing documents. Understanding these limitations can help ensure that an HOA acts within its scope of authority.
What are HOA Late Fees?
Simply put, homeowners association late fees are additional charges that an owner incurs if they don’t pay their dues on time. In an HOA or condo community, owners are obligated to pay regular dues that fund the association’s day-to-day and long-term expenses.
Failure to pay these dues can result in several consequences for the HOA. Associations rely on these dues to pay for goods and services. Without sufficient funding, boards would be forced to raise dues, levy special assessments, or take out a loan to meet financial needs. Alternatively, boards may cut back on costs, which can lead to deferred maintenance and inefficient operations.
Imposing a fee on unpaid HOA dues encourages payment and compliance. For most communities, it is the first step in a long list of potential penalties that owners stand to face. Left unpaid, late fees can graduate to more extreme measures, such as liens and foreclosure.
Can HOA Charge Late Fees?
Whether or not an HOA has the authority to charge late fees on unpaid HOA assessments depends on two things: state laws and the governing documents.
In Texas, Section 204.010 grants certain associations the power to charge interest and late fees on late payments of regular dues or special assessments. This only applies to associations under Section 204.002.
If state laws are silent or inapplicable, boards must refer to their governing documents. The CC&Rs and bylaws, in particular, typically outline the association’s powers, including the power to impose late fees on dues and assessments.
What to Include in an HOA Late Fee Policy
Even if state laws allow an association to impose late fees, it is still wise to establish a policy that standardizes the requirements and procedures involved. In doing so, board members can help protect both the rights of homeowners and the legal standing of the association.
While specifics can vary by community, a late fee policy typically addresses applicability, amounts, and notice requirements. Let’s discuss these below.
When HOA Late Fees Apply
First, the policy should determine when late fees on HOA dues will apply. Most associations allow a brief grace period for when regular dues are considered late, but won’t incur any penalties just yet. Exact timelines can vary, but it is common for HOAs to give owners 2 to 5 days to settle their unpaid dues without suffering late fees.
Once the age of the debt passes a certain threshold, late fees will then apply. Oftentimes, late fees also accumulate if the dues remain unpaid. In addition to interest, these charges can quickly balloon, deepening the owner’s debt.
Amount of Late Fees
Late fees should be reasonable. Otherwise, owners might challenge them in court. Some states have hard dollar or percentage limits on how much an association can charge in late fees. In Texas, there is no such limit.
Of course, that doesn’t mean associations in Texas have unlimited authority when determining the amount. Excessive HOA late fees can be detrimental to the community and cripple owners financially. In general, late fees should never go beyond the original debt.
Most HOAs settle for $20 or ten percent of the delinquent amount, whichever is greater. To know for sure, board members should check their CC&Rs and bylaws.
Notice Requirement
Late fee policies must also require associations to give adequate notice. This notice should inform owners that their dues are already overdue and how much interest and other charges they have incurred. Additionally, the notice should set a payment deadline and outline additional penalties, including accumulated late fees, that they may incur if the amount remains unpaid.
Are HOA Late Fees Reported to Credit Bureaus?
Some HOA and condo associations report delinquent dues, including late fees, to credit bureaus or agencies. This will affect the owner’s credit score.
That said, in Texas (Section 209.0065), associations must follow certain rules when making this report. Before reporting, association boards must provide the owner with written notice detailing all unpaid charges. The association must send this notice at least 30 business days in advance.
Additionally, associations must give the owner an opportunity to enter a payment plan before making the report. Payment plans allow owners to break down their debt into more manageable installments.
There is an exception. If an owner is currently disputing the charge, the association may not report it to a credit agency. Moreover, associations can’t charge the owner any fees for the report.
How to Fight HOA Late Fees
Late fees can compound an owner’s debt to the association. When these fees accumulate, owners find it even harder to settle their delinquency.
If late fees are warranted and the association followed due process, then owners generally can’t fight them. That said, owners may be able to negotiate with their board.
Delinquent owners can request a waiver of late fees in exchange for full payment or a payment plan, especially if they have a good payment history. Sometimes, the late payment is simply a one-off due to unforeseen circumstances or financial strain.
After settling the amount, owners must keep a record of the payment. This can come in the form of a receipt or a notice that the debt has been paid. Proper documentation can help build a solid defense if the HOA attempts to collect the same debt due to a clerical error.
Word of Advice
For most associations, HOA late fees are an effective way to deter delinquency and encourage owners to pay on time. That said, board members must establish a clear policy for imposing and collecting such fees. In doing so, they can minimize legal exposure for both the community and themselves.
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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