As a homeowner in a planned community governed by a homeowners' association (HOA), you might enjoy using various perks, such as a common swimming pool, parks, fitness room, or clubhouse. You also know you must pay for those jointly owned benefits, in the form of periodic dues or assessments.
As a responsible home owner, you probably always pay your dues fully and promptly. But what if your neighbors don't? Does it affect you? We'll look into that here, including:
Almost every planned community is run by an HOA, which is composed of all the owners in the development and run by an elected board of owner-volunteers. The HOA's obligations are set forth in the governing documents for the development. These might include articles of incorporation, bylaws, a Declaration of Covenants, Conditions, Restrictions and Easements (CC&Rs), and sometimes separate rules and regulations.
Among the HOA's main obligations is to maintain, repair, and replace the common areas, such as hallways, meeting areas, elevators, and a gym, pool, or golf course.
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). (See Why an HOA Needs Sufficient Cash Reserves.)
Typically, the HOA divides dues equally between all homeowners in a development, although in some, 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 4,000-square-foot penthouse unit might pay proportionately more than the owner of a 400-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. When that happens, 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 scenarios, 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 are raised too high, homeowners in the development might find it too expensive to live there at all. Many homeowners might sell, or, even worse, abandon their homes and leave the development. (Unfortunately this scenario has occurred many times over the years, especially during economic downturns, when 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.
Even if you are able to determine which owners are not paying, however, there's not much you can do with that information. Any action you take personally against a delinquent owner; such as phoning, or personally confronting a neighbor; is likely to be considered harassment and possibly deemed illegal.
A better option for individual homeowners might be to pressure the development's HOA to take action. Schedule a meeting with the HOA board of directors and voice your concerns about the delinquencies and increased dues.
Since (unless it's a new development) the board members are homeowners also, they are likely to be similarly concerned. Find out what, if anything, the HOA is already doing to try to remedy the problem.
Familiarize yourself with the rights of your HOA. What it can do to get a delinquent home owner to pay depends upon the terms of the governing documents. The HOA might (or might not) have the right to assess fees for delinquent dues, start a lawsuit against the nonpaying owner, put a lien on the delinquent owner's property, or even foreclose on the owner's property to collect the lien amount.
If your HOA has the right to take action against deadbeat homeowners but does nothing, you might consider trying to force it to act.
One option is to replace board members who are not doing their job. The development's governing documents usually give homeowners this right, if certain procedures are followed. Or, you might start a lawsuit against the HOA for not performing its obligations under the governing documents.
If the governing documents do not give the HOA the power to do anything about delinquent owners, you might wish to amend them to grant the HOA more powers. An amendment to the CC&Rs, for example, could give the HOA the right to assess fees for delinquencies, to sue delinquent homeowners, or to file liens for delinquent dues.
Unfortunately, none of these solutions are simple. They will likely be time-consuming and expensive, with no guarantee of bringing about real change. Because of the legal issues involved, you should consult an experienced attorney in your area for advice.
Possibly the most effective approach as a homeowner worried about a trend of delinquencies among your fellow homeowners is to get involved in HOA operations as soon as possible. You could run for a board position or, at a minimum, give input at the member meetings.
Make your opinion heard during budget meetings, and during any discussion of delinquencies. Try to get the HOA to act before any troubles with dues collection escalate.