Several years ago, during COVID, I wrote about whether homeowner and condominium associations should relax their normal assessment collection practices. Many boards were understandably concerned about owners facing financial problems.
We are starting to get similar questions again as some owners face tighter household budgets and associations continue to deal with rising costs.
The broader point remains the same: sometimes being too lenient about unpaid assessments does not help anyone, including the owner who owes the money.
That does not mean community associations should be inflexible. Payment plans, extra time to pay, and temporary delays in collection can all be appropriate. The problem comes when an association simply allows a delinquency to keep growing.
Associations Still Have Bills to Pay
Assessments are collected because community associations have expenses. Those obligations are created by the same governing documents that require owners to pay their share. Association costs for insurance, landscaping, utilities, management, repairs, and reserve contributions all have to be paid.
If some owners do not pay their share, the association does not suddenly need less money. The result may be reduced services, delayed maintenance, lower reserve contributions, special assessments, or higher assessments later.
In practical terms, unpaid assessments can shift part of the financial burden to owners who are paying on time.
Collection laws vary by state, but delay can even affect whether the association ever gets paid. In the Carolinas, if a property is sold without a lien on the property, or if a bank forecloses first, the unpaid assessments may go uncollected. Waiting too long may also create statute of limitations issues.
Delay Can Hurt the Delinquent Owner Too
Too much leniency may also make things worse for the owner who has fallen behind.
An owner may be able to manage a relatively small monthly obligation but have no realistic ability to pay a much larger balance later. Meanwhile, additional assessments continue to come due, along with possible late charges, interest, collection costs, and attorneys’ fees.
What began as a manageable problem can become much harder to solve.
Often, dealing with the delinquency earlier is actually the more helpful approach.
Working With Owners Is Appropriate
None of this means every delinquent account should immediately be turned over to an attorney or pushed toward foreclosure.
Community associations can and often should work with owners. A reasonable payment plan may allow someone to catch up over time. Giving an owner additional time may also make sense in unusual circumstances.
In North Carolina, state law specifically recognizes this flexibility. Both the NC Planned Community Act and NC Condominium Act provide that a board, in its sole discretion, may allow an outstanding balance to be paid in installments. Neither the association nor the owner is required to offer or accept a particular payment schedule. See N.C.G.S. §§ 47F-3-116(i) and 47C-3-116(i). In other words, working with owners is built into the statutory collection process.
But there should be a realistic path toward getting the account current.
For example, an owner might pay the regular assessment plus an additional amount toward the past-due balance. What generally does not work is an arrangement where the owner pays less than the amount currently coming due, causing the balance to keep growing, or pays so little toward the past-due amount that the account remains delinquent for an extended period.
Be Careful About Saying What the Association Will Never Do
Some boards decide they will send collection letters or file liens but will never go beyond that point.
That may sound compassionate, but it can create problems. If everyone knows there is no meaningful consequence beyond a certain stage, there may be little reason for a seriously delinquent owner to address the account.
That does not mean every available remedy should be used. Cost, the amount owed, the owner’s circumstances, other liens, and the chance of recovery may all matter.
But there is an important difference between deciding not to pursue a remedy in a particular case and announcing that the association will never use that remedy.
Boards should generally preserve their options.
A Collection Policy Helps
A reasonable collection policy can help balance consistency and flexibility.
Most community management companies have standard collection procedures or policies, and our firm does as well. Those policies can provide a useful starting point for deciding when reminder notices are sent, when late charges or interest are added if authorized, when an account is turned over for collection, and when further action may be considered.
The important point is that the association should have a process and generally follow it, while still keeping some flexibility for unusual circumstances.
The goal is not punishment. It is to collect the assessments needed to operate the community and to keep manageable delinquencies from becoming much larger problems.
A good collection process can still include payment plans, additional time, and reasonable accommodations. But allowing an account to grow indefinitely usually does not help the association, the owners who are paying, or the owner who is behind.
Sometimes the kinder approach is to address the problem before it becomes a much bigger one.
For questions about HOA or condominium matters, contact a community association attorney at one of Law Firm Carolinas’ North or South Carolina offices.