Personal finance issues can easily seep into condo and HOA affairs. When a tough economy makes it challenging for average income earners to keep up, they begin to evaluate where they can reduce costs or delay payments. For some, putting a temporary pause on payments owed to their condo or HOA might seem like a viable solution.

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However, corporations and associations count on fees from each owner. They create their annual budgets based on the payments they will receive from members, and if they receive less than they accounted for, it becomes more challenging for developments to keep up with day-to-day expenses. 

Defaulting on fees or dues is a bigger problem than some owners may realize. Not only is this considered a violation of community expectations/requirements, but doing this compromises the financial stability of the community.

Table of contents

• What are payment plans?
• Must owners be offered this option?
• Will owners hold up their end of the deal?
• Owners cannot ask to review payment plans belonging to others
• Payment plans can be beneficial for both parties

So, what’s the solution? Condos and HOAs must be vigilant about staying on top of delinquent fees, but at the same time, owners can’t spend money they don’t have.

A formal payment plan might be an ideal solution for both parties.

What are payment plans?

A payment plan is an agreement made between a condominium or HOA, and an owner. It requires the owner who is behind on dues to make regular payments for a set period of time in order to pay off their debts.

While it is customary to include all fines and late fees in the calculation, it is not unheard of for owners to negotiate with management or the board to waive those fees. Nevertheless, the original sum of fees owed is almost never negotiable.

Payment plans are designed to help alleviate the financial burden that some owners may be experiencing, especially if they have just lost their job or are having to pay off unexpected expenses. With a payment plan, condos and HOAs are still able to generate some revenue, lessening the impact of delinquent payments.

Must owners be offered this option?

In many cases, owners are not entitled to a payment plan. However, there are some places that do require governed communities to have this option available to members before pursuing more aggressive collection strategies.

For example, in Colorado, associations must offer a payment plan with a repayment period of at least six months. Associations are not obligated to negotiate payment plans with owners who have previously entered into payment plans since January 1, 2014. However, the association’s governing documents and policies may have different requirements.

This law does not exist in California, but if an owner submits a request for a payment plan to their HOA, the state does require the association to at least consider the request. The association must also provide owners with the standards for payment plans, if any exist. 

If there are no state laws that address payment plans, managers and boards still need to consult with the community’s governing documents for guidance.

CC&Rs or bylaws may address this issue and require the condo or HOA to offer payment plans if an owner becomes delinquent. The documents may include additional requirements, such as minimum repayment periods, and whether late fees must be included in the calculation.

Will owners hold up their end of the deal?

Once both parties have agreed to a payment plan, it is necessary to draft a contract to formalize the agreement. The contract will often include the following details:

• A declaration of the owner’s financial hardship
• The total amount owed by the owner to the condo or HOA
• The amount the owner must pay each time payment is due
• The frequency and duration payments will be made (ex. monthly for 8 months) 
• A clause about the community’s right to continue collection efforts should the owner default on the payment plan

It is always best to have an attorney review the contract before anyone signs it to ensure it is legally binding and enforceable. The owner is also encouraged to bring the contract to a lawyer to ensure their best interests are not being compromised.

There is always a risk that an owner will default on their payment plan, but it’s generally better to give an owner a chance to catch up on payments first before taking more stringent actions.

If the owner fails to meet the requirements laid out in the agreement, then management should continue with the fee collection process. If the issue becomes unmanageable, the condo or HOA may eventually resort to attaching a lien to the owner’s property and initiating foreclosure proceedings.

Suspend privileges

After a certain amount of time has passed, a condo or HOA may suspend an owner’s right to vote, access amenities, receive a parking pass, etc.  

Place a lien on the property

A community may have the ability to place a lien on a delinquent owner’s property. Liens should always be recorded with the county recorder’s office as a formality, though some states require it.

Foreclosure

The process for foreclosing a lien depends heavily on state laws. In some places, the condo/HOA must file a lawsuit in court to foreclose. In other places, the condo/HOA may be able to address the issue outside of court. In some states, foreclosure is not possible until the owner is a specific number of months, or a certain amount of money, behind in payments.

This process is technical and can be long, and should only be used as a last resort.

Owners cannot ask to review payment plans belonging to others

Payment plans are not considered community records, which are subject to inspection by other members. Someone cannot ask to review a plan created for another member. Owners should only have access to their own plans.

Payment plans can be beneficial for both parties

Some communities may be hesitant to offer payment plans, but they can be a good remedy for all parties involved.

In order to be as effective as possible, payment plans should be realistic, meaning the owner is capable of making the payments on time. Asking someone who is experiencing financial troubles to make monthly payments of $4,000 is probably not realistic or achievable. Plans should also span a reasonable amount of time. Plans that are too lengthy and require payments that are too low may not be as successful.

Conclusion

Payment plans can help owners and condos/HOAs. While many communities are not required to provide payment plans, it is often better for the community to receive some money than nothing at all.

In the event that an owner defaults on a payment plan, the condo/HOA may resume its collection efforts, and in most cases, would not be required to offer another plan to that owner.