(Blog co-authored by David Wilson & Harmony Taylor. This is a continuation of the earlier blog, “Top Amendments for an HOA or Condo in North Carolina or South Carolina.”)
We are often asked by board members for HOA and condominium associations to review their community’s documents and “update” them or “make them more modern.” While there is no one-size fits all solution for any community association, we have noticed that some amendments are a good idea for most communities. Over the next few articles, David Wilson and Harmony Taylor will be exploring some of the amendments that we frequently recommend to the associations that we represent.
Whether you are a single family, townhome or condominium community, you may want to think about some of the amendments that we describe and see if you and your community would benefit from one of these changes.
In part two of our series we look at a simple amendment that prevents delinquent homeowners from saying that payments have been misapplied or wrongfully rejected.
Part Two: Add Provision That Requires Payments on Delinquent Accounts to be Applied First to Late Charges and Then to Assessments
One of the most frequent complaints that we hear from delinquent homeowners is that “I have been paying my dues but you applied them to late charges and not to my dues.” The classic example is where a homeowner writes on a check to the association something like “for April HOA dues only.” If the association accepts the payment and applies it to delinquent charges first, has it misapplied the payment? Or, if it rejects the payment because the check attempts to direct how the payment must be applied, does that open the door for liability?
Although this argument does not garner a lot of attention, it has led to lawsuits under various theories by imaginative plaintiffs. In the business world there is nothing surprising about a party who is delinquent in making payments being liable for late charges, interest, and eventually attorney’s fees as well. It is the industry standard and courts have no problem with it. In the world of homeowners associations, though, making a covenant change can save the community time, energy, and money when this issue comes up.
In a recent case out of Ohio, a condominium was protected from this type of homeowner argument by the fact that it had amended its covenants to specifically require that payments on delinquent accounts would be applied first to late charges, interest, attorney’s fees, and other costs of collection and then to assessments. In that case the court easily rejected the homeowner’s argument because of the amendment, pointing out that the association was not required to violate the covenants and accept payments with stipulations attached to them.
We have seen these types of cases in North Carolina and South Carolina and having language like this in the association’s governing documents would have been a protection for these communities.
If your community would like to find out more about amending your documents to clarify how payments are applied contact our community association attorneys in one of our Charlotte, Greensboro, Triangle, or Coastal offices.