Before you get any further, please keep in mind that you should always pay your HOA dues if you can. A disagreement with your board or disapproval of a decision is no reason to skip a payment. Not only do late payments impact your neighbours, but you may end up dealing with serious consequences for failing to pay on time.

Now that we’ve shared that friendly reminder, let’s take a look at why HOAs collect dues, and what could happen if an owner doesn’t pay.

Why HOAs collect dues

Homeowners associations offer members several perks. But in exchange for the good stuff, the association needs money from owners to continue providing services and preserving the property.

The HOA has an obligation to maintain common areas. But without sufficient revenue, achieving that goal is just about impossible. Whether it’s keeping the community pool clean and safe, or ensuring the lights stay on in the clubhouse, the association counts on every member to pay their fair share on time.   

Increasing dues

Some owners become frustrated by how much HOA fees can increase over the course of a few years. While fees seemed reasonable when they moved in, the new rates seem excessive. The average monthly HOA dues in 2005 was $250, but by 2015, that average rose to $331, outpacing both national housing prices and inflation, reported Trulia.

While it’s normal to feel frustrated by increasing dues, keep in mind that the board raises dues because it needs to. There are two main reasons why a board would increase fees:

• Service costs and bills go up as the cost of living (inflation) increases. In order to keep up and balance the budget, dues will be increased.  
• Reserve funds, set aside and earmarked for significant maintenance, replacements and repairs and strategic capital improvement, may be underfunded. A portion of dues is supposed to be put into the association’s fund, but many funds could benefit from having more money in them.    

HOAs can typically raise dues 5% or 10% each year, but there are limits. Once an HOA figures out its annual budget for the following year, it will be in a position to decide if owner fees will increase, decrease or stay the same. The development’s CC&Rs will likely state how much the HOA can increase dues and assessments each year. For example, the CC&Rs might limit annual increases in dues to 2%.

Depending on where you live, your state laws might also regulate dues increases. For example, a state may forbid HOAs from increasing dues by more than 20% per year without the vote of a majority of members of the HOA.

The takeaway here is HOA dues will increase. Owners may not like this, but they are expected to accommodate the changes.

Consequences for failing to pay your dues

What follows after an owner fails to pay dues depends on the HOA. Each HOA will have its own process for handling delinquent HOA dues. The consequences may vary depending on what’s spelled out in the governing documents. Most HOAs will have a fine schedule to ensure penalties remain consistent and aren’t issued arbitrarily.

Below is an idea of what could happen if you do not pay your dues.

Notice of missed payment

The first thing an owner is likely to receive from the HOA is a notice of missed payment. The purpose of this letter is to inform the owner that payment has not been received. The notice typically includes details of the outstanding debt, including the total amount due and how long the payment has been due. It should also explain what will happen next if the payment is not made within a certain amount of time. 

Late fees

If the notice is not addressed and payment is not made, the HOA’s next step may be to issue a late fee on top of the outstanding dues. The HOA’s governing documents should state how much the board can charge in late fees.

Suspension of rights

If late fees don’t help resolve the issue, the association may have the authority to suspend some of the owner’s rights temporarily. That usually means they will not be allowed to use shared amenities such as the clubhouse, pool, and gym. The board can even revoke an owner’s right to vote on issues concerning the community until they’ve paid all outstanding fees.

Taking funds from tenant payments

This only applies to owners who rent out the property they own in the association. While not common, an HOA can take out delinquent HOA dues from an owner’s rental income. In some cases, the association may even seek repayment directly from the tenant. The HOA could only do this in certain situations, but renters won’t stick around long if they get tangled up in their landlord’s mess.

Lawsuits

HOAs don’t like having to take issues to court, but late dues can lead to a lawsuit. A number of states will give HOAs the authority to sue delinquent owners and seek compensation for the amount due. If the association is successful, the owner may be on the hook for the HOA’s legal fees, too.  

Liens

Most HOAs do have the right to place a lien on an owner’s home should they default on payments. A lien is a claim for money owed that is asserted against a property, as opposed to the person. By filing a lien, the HOA can take meaningful enforcement action without having to file a lawsuit.

The lien will attach automatically to the home retroactive to the due date of the HOA fees. The association may choose to record the lien in the county records, and in some states, doing this is mandatory. Once a lien is placed in a property, it becomes significantly more challenging to take out another mortgage or sell the home.

Foreclosure

If the HOA has tried everything and feels that it has no options left, it may take steps to foreclose on the lien. It doesn’t matter if there is a mortgage on the home. As long as state laws and the CC&Rs allow it, the HOA can foreclose. In some states, the HOA must wait a certain number of months, or the owner must owe a specific amount before the association can foreclose.

Although this course of action may cause the owner to lose their home, that doesn’t automatically erase the fees owed. The HOA collects the money owed by selling the home and this wipes out the debt that the owner didn’t pay. The association could decide to sue the owner for the amount that they owe after foreclosure since it is considered a personal debt. However, this option is much more costly and time-consuming and may not be worth the work (especially since there are limits to how much a party can claim if the lawsuit takes place in small claims court).

Conclusion

Delinquent HOA dues can be damaging to you and to your association. Not only do late dues impact the community’s ability to make its payments on time, but your financial health could take a hit if you continue to delay payment.

If you are having trouble keeping up with dues because of personal financial issues, you are strongly encouraged to speak with your board or HOA manager right away. HOAs should be open to a payment plan as long as the owner is proactive about addressing the issue in a timely manner.