Real Estate

Unpaid HOA Assessments & Your Bankruptcy or Foreclosure

Talk to a Local Homeowners Association Law Attorney

Homeowners' associations (HOA) serve several different types of residential properties, ranging from single family homes to condos, and can serve different purposes. The main common feature is the HOA assessment or dues owner-members pay to the HOA. Where there's a payment to be made, it's inevitable a member will miss a payment. What happens next?

When you're an HOA member, it's important to know how to manage your personal HOA account, what you can do if you miss a payment, can't make payments, and what the HOA might do to collect.

HOAs, Neighbors and Business

It's common for an HOA to take quick action once an owner misses even one payment. Dues are often paid monthly, and when an account is a month or more behind, it can look like the HOA is quick to move and use aggressive collection methods. To a single owner-member, it can be alarming, threatening and frustrating. The HOA is a group of your neighbors, after all.

The view is different from your HOA board's view. An HOA is group of organized property owners of a subdivision, condominium or planned unit development (PUD), serving some function for the membership. It could be ownership of common elements and managing a condo, or common areas and features in a subdivision, such as a park or pool area.

HOA operations are funded by member dues. Budget time draws interest from owners who are quiet the rest of the year, and most HOAs run a tight fiscal ship. The HOA has a duty to collect member dues. The entire membership suffers when accounts go delinquent. Remember, it's not personal.

HOAs, Account Collections and Workouts

An HOA has periodic meetings, often monthly, where the HOA's treasurer presents the financial report, including status on member accounts. When your account is overdue, expect to hear from your HOA sooner, rather than later. Aggressive collection efforts may start as quickly as 60 to 90 days after a payment is missed.

State laws cover the rights of HOAs and dues collections methods they can use, and they vary. Getting information on HOA law in your state isn't hard. Check out these resources:

  • State real property laws
  • Your HOA documents
  • Ask your HOA board or its hired property manager

When a payment is missed an HOA generally:

  • Sends out a reminder and late notice
  • Sends further notices once late fees start to apply
  • Sends notice that it plans to use foreclosure or eviction

Early and honest communication with your HOA is important. The HOA wants dues paid, plain and simple. While an HOA may have a legal duty to collect dues, and can't forgive overdue amounts, it likely wants to come up with a workout solution to allow you to bring your account current. Getting late fees waived is a likely option.

Foreclosure by Your HOA

Foreclosure is when a creditor with a lien against your property takes it as payment for the debt you owe. Foreclosure by your mortgage lender is a familiar example. An HOA can get a lien against a member's property for overdue accounts, and move ahead with foreclosure.

Generally, you can stop a foreclosure by paying off your account balance and other amounts, such as late fees and HOA legal expenses.

State law varies on foreclosures by HOAs, and balancing foreclosure rights, say when a lender and an HOA foreclose on a property. One reason for an HOA's quick action to collect dues is that if a lender forecloses, there can be limits on collecting back dues.

State law may give an HOA other collection options, such as evicting you from your property and renting it until HOA and related fees are recovered.

Your Bankruptcy Case and HOA Assessments

Unpaid HOA assessments are one type of debt you may owe when you decide to file for bankruptcy. Facts control how this debt type will be treated in any given case, so it's best to talk to your bankruptcy lawyer to see what might happen in your situation.

Assuming there's a lien for HOA fees when you file for bankruptcy, here's a general idea of how this claim type is treated in the two main types of bankruptcy used by individuals:

  • Chapter 7: The HOA is a secured creditor, and the bankruptcy won't stop eventual foreclosure by the HOA. The bankruptcy discharge may not end your duty to pay HOA fees
  • Chapter 13: The HOA claim may be included in your Chapter 13 repayment plan. You are still at risk for foreclosure by your HOA if you don't make your plan payments

It can be a challenge, prioritizing bills when you're facing financial problems, but covering housing expenses, including your HOA bill, should be at the top of the list. It prevents problems later on, and keeps your home and relationship with neighbors in shape.

Questions for Your Attorney

  • If I file bankruptcy but I'm not in arrears on my HOA fees, should I list the HOA as a creditor?
  • I set up a workout plan with my HOA to bring my account current. The HOA still filed a lien against my condo. Can it do that?
  • Do I have a legal claim against my HOA if I brought my assessment account current and it failed to promptly remove the lien against my property?
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