How to Deal with Unpaid Home Owners Association Assessments.

Many small to mid-size home owners associations (“HOAs”) are run by a board made of a few active members. It can be a thankless job, especially when the HOA cannot afford to pay an outside management company to be responsible for the day-to-day management of the HOA. The question that always arises is how to handle the member that has stopped paying assessment dues. In a small HOA, delinquency of even a few hundred dollars can be a large percentage of the HOA’s budget. Here are my tips on how to handle delinquent members.

1) Stay on top of it. I expect more than the fair share of folks reading this article are of the thankless volunteer type I described above.  You probably got suckered (sorry) into volunteering for a position with your HOA because you care about your community and frankly, no one else raised thier hand at the annual meeting.  I am sure it wasn’t fun to realize that one of your main duties has become bill collector against your neighbors. Remember that you’re working for the greater good of the neighborhood. Although it may be a debt you don’t care all that much about on a personal level, it does matter to the HOA’s bottom line.

Regular reminders may just get some of the delinquent homeowners to pay up.  Remember, they still have to smile and wave when you pick up their son or daughter in the carpool on the way to soccer practice.  If you are looking for a way to pass the obligation onto a third-party, most attorneys are willing to send debt collection letters on your behalf for a nominal fee (costs that usually can be passed on to the delinquent party).

2)  Understand the way lien priority works for assessment liens. You have to read your HOA’s Declarations to be sure, but almost all HOA’s in Minnesota have a provision that allows them to take advantage of Minnesota law with respect to lien priority.

The gist of the law in Minnesota is that an HOA’s assessment liens are almost always second in priority only to the first mortgage on a property. This means that at the time of the sale of a property, any title company providing title insurance to a lender or homeowner should be ensuring (and insuring) that dues are current  at the time property is transferred.

Frankly, sometimes title companies get lazy and don’t follow-up. If the HOA hasn’t been paid and there is a property transfer, call an attorney.  An attorney can find out how the property was transferred and may be able to track down an insurance policy that will pay off the lien despite the property transfer.

3. Keep the HOA’s Contact Information Available. Make sure that owners, realtors and title companies can easily find a representative from the HOA to talk with to get pay off numbers when a property is transferred.

4. Consider filing Notice of Your Lien. If the Lien is fairly large, you may want to consider filing notice of the lien with the appropriate county records office.  Usually this is a service an attorney can provide for a nominal fee.  I charge $150.00 plus the filing fee for drafting and filing most notices. Most declarations will allow you to add the cost of collection (attorney time and filing fee) to the lien.  You don’t need to file the notice to perfect the lien, but it makes it much more difficult for a lazy title company to miss your HOA’s lien when it is of record.

5. Understand how lien priority works in foreclosure. It is also important for HOAs to understand what happens to their lien in foreclosure.  This can get a bit complicated and I would recommend you speak to an attorney if you have a delinquent property in foreclosure: my comments are a very general overview of the law. If the first lien is being foreclosed, the HOA will lose its lien rights up to the date of the sheriff’s sale unless the HOA chooses to redeem.  But, if a second mortgage is foreclosed, the HOA will retain its full lien.

6.  Talk to legal counsel if a property is in foreclosure. I know I write it in almost every post (including twice already in this post) that you should talk to an attorney.  But, there are some creative ways an association may be able to recover in a foreclosure that an attorney can help you with.  Rarely is an HOA going to choose to redeem in a foreclosure scenario, but you could consider selling your lien rights to a third-party. If you have the right set of facts, it can work.  Or threatening to foreclose the assessment lien.  It is sometimes the best way to negotiate a payment.

7. Don’t forget about the personal obligation of the owner. Not only are assessments liens on the relevant real property, but they are personal obligations of the owner. The HOA can consider bringing a court action. Usually a conciliation court action (for matters under $7,500) suffices and may not require attorney assistance.  The personal obligation remains after any foreclosure.  Moreover, a judgment, if properly docketed, becomes a lien on real property owned by the debtor.

8. One More Attorney Plug. If your HOA has a decent amount of delinquencies you may want to consider seeking a flat fee arrangement with legal counsel.  You may be able to negotiate a reduced flat rate for providing an attorney regular business such as filing assessment liens, sending debt collection letters, and even representing your HOA in court.