Associations are allowed to charge reasonable late fees. But the definition of reasonable, and the frequency and application of reasonable, could land your association in hot water should you not lay out your terms from the start. Late fees should not outpace the amount due, nor should they be so high that collection becomes impossible. Many associations assess a $25 late fee, which meets the reasonable criteria.

Look at your late-fee process. Do your bylaws allow for a late fee to be collected should association fees become past due? If so, make sure the fee is reasonable, and that you and your occupants understand the assessment process and frequency of any subsequent late fees. Courts in the past have found that compounded late fees do not fall within the definition of reasonable fees because associations have not openly stated the fees will compound each month the bill remains unpaid.

Also, make sure that it is clearly defined in your contracts with unit owners how late fees will be assessed. It is well within your rights as an association to charge a late fee for each overdue bill. For example, if Fred Smith is late with his $350 June assessment, a late fee off $50 applies to that bill. Should it remain unpaid in July, associations should not tack on another late fee. It is past due at $400. However, if Fred fails to pay his July assessment as well, he now owes the association $400 for July in addition to the $400 he owes for June.

To make sure you’re able to collect late fees, establish a written collection process, with clearly stated late fees and application of those fees. If you intend to compound late fees, say so in your documentation. Also, provide each unit owner with the process, in writing, preferably on the agreements signed upon occupancy. If you need assistance devising a workable late fee/collection process, contact us.

Flickr photo credit:  David Blackwell

Wrong. See, most states do not allow for associations to restrict or deny its residents any amenities as a means to force payment. Oh, you want to, but oh no, you can’t. It’s about protection for the consumer, not the association. Your homeowner’s association is limited to taking only the corrective action it has set forth in writing as a means of collection.

Practically speaking, most utility providers can’t fulfill such requests anyway. Cable companies and telephone service providers are bound by their own set of policies, and they have a direct relationship with your delinquent residents. As long as the residents pay their cable and phone bills, there’s no way you’re going to convince the companies to shut off services even if it were possible.

As much as associations dislike it, they do have to consider collection procedures. First, clearly state your homeowner association’s policies: when payments are due; when late charges are added; when residents will be sent a notice of lien; at what time a lien is registered against the owner’s unit; and how long before the delinquencies add up to a foreclosure situation. Also, boards must state their final approval of all foreclosure settlements or else they risk forfeiting the right to hold out for the full amount due.

Work with your homeowner’s association insurance broker to develop a clear collection and enforcement policy. Just make sure you understand that denying a delinquent homeowner access to common grounds and amenities is not just a bad idea – it’s prohibited.

 Flickr photo credit: Leo Reynolds