Obligation to Pay Assessments
Homeowner dues (legally called “assessments” by statute) are the lifeblood of an association. Most all HOAs and condominium are nonprofit corporations. That is, community associations are not designed to make money; they are designed to pay the association’s bills. Associations basically act as agents for collections by other entities—water, garbage, electricity, landscaping. The funds collected are not kept by the association, but are forwarded to other parties, including the government. For example, many of our associations pay the premiums insuring all units each year.
Unless assessments can be collected the association will owe debts but not have the funds to cover them. And because associations tend not to have excess funds sitting around, any shortfall can usually only be made up by:
- not paying necessary obligations,
- charging other homeowners higher amounts, or
- allowing the community’s common elements to deteriorate.
All purchasers who buy into an association agree by contract (in the “Declaration”) to pay certain amounts, and it simply isn’t fair to the other owners to allow a few non-paying owners to hurt everyone’s property values. Given all these considerations, our advice to associations is to be vigilant (while also being fair and courteous) in pursuing past-due assessments.
Collection of Assessments
We are often asked as attorneys what can and can’t be charged to a homeowner during the collections process. The answer is complicated and can vary depending on the facts and governing document language for each community. However, here are some general considerations when collecting assessments in North Carolina and South Carolina.
South Carolina does not have the exhaustive statutory scheme as North Carolina. What that means is that the governing documents carry more weight in the Palmetto State as to what can be sought from an owner. For questions about any specific SC collections, I encourage you to contact any of our firm’s South Carolina licensed attorneys for advice.
Assessment collections in North Carolina for both HOAs and condos is heavily regulated by statute. And those statutes often override specific language in the Declaration or Bylaws. Because improper collections can violate federal and state collection practices statutes (and carry penalties), it’s important to have good collections practices and to carefully follow them.
Generally, in North Carolina a homeowner is obligated to pay the following amounts for nonpayment of assessments (FYI, the process for collecting fines as a result of violations is different and the subject of other articles):
- The past-due assessments owed under the Declaration
- Late charges not to exceed the greater of $20.00 per month or 10% of any assessment installment unpaid
- For older associations, interest if allowed by the Declaration (not to exceed 18%); for newer associations, interest as established by the Board (not to exceed 18%)
- Reasonable attorneys’ fees and court costs as permitted by statute so long as certain steps have been followed.
If such amounts owed are not paid, a claim of lien can be filed on the property and (after many more steps) foreclosure proceedings can be commenced. While such recourse may seem harsh, the prompt collection of assessments is necessary in order for associations to pay their obligations and avoid increasing assessments for members.
FYI, in the mid-2000’s, the NC General Assembly amended the HOA and condo statutes to provide that “[A]n association shall not levy, charge, or attempt to collect a service, collection, consulting, or administration fee from any lot owner unless the fee is expressly allowed in the declaration . . .” The intent behind this change was to prevent homeowners from being billed surprise charges beyond those allowed by statute, whether related to costs of a third party collection agency or the actions of a community management company. While such charges can certainly be paid by the association, legislators did not want homeowners charged these amounts without supporting language in the Declaration. As a result, any such charges billed to an owner must be clearly allowed by the documents and must be reasonable as to amount.
Firm Collections Process
With four offices (Greensboro, Charlotte, Triangle and Coastal) serving both North and South Carolina, our firm has one of the largest community association legal practices in the Carolinas. We advise associations on a wide range of legal issues, including litigation, collection of assessments, governing document amendments, covenant and restriction violations, board and annual meeting controversies, and resolving neighborhood disputes. We also assist associations statewide in collection of assessments through our Automated Assessment Collection System, which combines aggressive collection efforts with a process that provides homeowners a full and fair opportunity to bring their account current.
Some highlights of our system:
- Our firm advances costs of collection/attorneys’ fees and such expenses are generally paid by the homeowner, not the association. In other words, it is much more common that we send money to the association rather than bill the association.
- Our office can often pull homeowner information electronically from the management company, avoiding the potential for mistakes in transmission of documents.
- Association managers can log in to our online system at any time to view current collection efforts, with details that are updated daily.
- Status reports for all accounts are emailed to association managers biweekly.
- Depending on management company software, our attorney notes (which include any updates or conversations with homeowners) can be synced directly into the manager notes.
- Collected assessments are forwarded to associations weekly.
- We can ACH (electronically transfer) recovered assessments directly into an association’s bank account.
For more details on our Automated Assessment Collection System or for assistance with any NC or SC community association collection issue, contact one of our HOA/condo attorneys.