Unintended Consequences: How State Collection Laws May Harm Communities

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Homeowners’ Associations (HOAs) rely on assessments to fund common expenses. When homeowners don’t pay their assessments, the HOA might face budget shortfalls which can lead to reduced services, deferred maintenance, or increased assessments for all other homeowners. However, in some jurisdictions, there have been changes in legislation aimed at protecting homeowners from aggressive collection practices. While these changes have been designed with good intentions, they can have unintended consequences for HOAs.
What You May Not Know

Here’s how these legislative changes can impact the ability of HOAs to collect delinquencies in a timely manner:

  1. Extended Grace Periods: If the new legislation provides for longer grace periods before an HOA can take action, it will naturally delay the collection process.
  2. Limitations on Fines and Fees: Some legislation might cap the amount of late fees or fines HOAs can charge. While this is designed to prevent homeowners from being buried under an avalanche of fees, it may also reduce the incentive for some homeowners to pay promptly.
  3. Restrictions on Liens and Foreclosures: Traditionally, HOAs have had the power to place a lien on a property or even foreclose in cases of extreme delinquency. If new legislation restricts these powers, the HOA’s leverage in negotiations diminishes.
  4. Increased Legal Hurdles: Some new laws require more legal steps or notifications before an HOA can take action. This can not only delay the process but also increase legal costs for the HOA, which may then be passed on to the members.
  5. Mandatory Mediation or Arbitration: If the law requires HOAs to go through mediation or arbitration before pursuing collections, this can introduce more delays and expenses.
  6. Protection Against Aggressive Collections: Some homeowners have faced aggressive tactics from attorneys hired by HOAs. Legislation may limit how they operate, which might slow down collections.
  7. Public Perception: As these laws are enacted to protect homeowners, HOAs that attempt to collect delinquencies might be viewed unfavorably in the public eye. This negative perception can make HOAs more cautious and less aggressive in pursuing delinquencies.
Now That You Know…

While these changes are aimed at protecting homeowners from unfair practices, they can also strain the finances of HOAs, especially those with tight budgets or in communities where delinquencies are high. When HOAs cannot collect funds in a timely manner, they might struggle to maintain common areas, provide expected services, or meet their financial obligations. This can lead to reduced property values and diminished quality of life for all residents. In summary, while protecting homeowners from aggressive collection practices is crucial, it’s also essential to strike a balance so that HOAs can maintain their financial health and continue to serve their communities effectively.