Q&A

Didn't pay your HOA assessments? Get ready for steep penalties and interest costs

Question: Our homeowner association is trying to foreclose on our home for unpaid dues and assessments. The mortgage payments have been paid on time, but the board is still threatening foreclosure. Worse, after the board hired a lawyer, our total owed dramatically increased.

We agree the unpaid dues are $3,240, but the board’s additional fees bring our total to $11,300 for a 36-month repayment plan, which is about 350% of the original unpaid dues. That includes $8,660 of past assessments, late fees and interest; attorneys fees of $1,588; and other assorted fees. In addition, we would have to pay $90 in ongoing monthly assessments.

We have proposed a plan that includes an initial payment of $1,000, and 34 monthly installments of $120 for a total of $5,080 — in addition to our ongoing monthly assessments. That would save us more than $6,000 compared with the board’s plan.

Is there any cap on fees? Is the board’s 36-month payment plan fair? What can we do about this?

Answer: It is important for titleholders to understand that their mortgage payments are separate from their association dues, assessments and fines. A mortgage has to do with your real property, while assessments involve your standing within the association. Whether an owner is up to date on mortgage payments, there is an obligation to pay association assessments as long as a titleholder is the legal owner of record.

What’s more, the requirement to pay association assessments is not relieved by a failure of the board to properly conduct its affairs. For example, the California courts have ruled that even when an association doesn’t make necessary repairs the titleholder still has an obligation to pay maintenance-fee assessments. (Duffey v. Superior Court, 3 Cal. App. 4th 425 (1992).)

The California courts have also ruled that an owner's remedy against the association does not include a set off or withholding of assessment payments; it consists of taking legal action against the association. (Park Place Estates Homeowners Assn. v. Naber, 29 Cal. App. 4th 427 (1994).)

Unless your association’s governing documents provide for more time, regular and special assessments are delinquent 15 days after their due date. Once assessments are delinquent, the association under Civil Code section 5650 is entitled to its reasonable costs of collection. That includes attorneys fees, late charges of $10 or 10% of the assessment, and interest not to exceed 12% on all charges except late fees, which cannot be assessed any interest.

Although the total amount you owe has increased substantially since the association began its collection efforts, it appears that most of the increase is from interest and costs of collection that are reasonably related to what you owe.

Although it is in your best interest to make a lump sum payment to cut off the accrual of interest, if you are unable to do so, any payment plan is better than losing your home. In fact, the board is not required to offer you a settlement or a payment plan.

If the board is unwilling to reduce the total amount you owe, ask that the interest and collection costs be suspended while you’re making payments. If you have accepted payment plan terms, keep in mind as you approach the end of the payment plan, try to renegotiate the accrued interest and collection costs.

The situation you find yourself in serves as a reminder to all prospective buyers who are considering living in a development with a homeowner association to think carefully about the associated mandatory costs. They include assessment dues, special and emergency assessments, and possible fines and penalties.

At first, monthly dues may seem affordable, even predictable, but they are subject to change at any time. Even reviewing the association’s financial records and physically inspecting the entire property before purchase is no guarantee that additional assessments won’t be levied in the near future.

Zachary Levine, a partner at Wolk & Levine, a business and intellectual property law firm, co-wrote this column. Vanitzian is an arbitrator and mediator. Send questions to Donie Vanitzian, JD, P.O. Box 10490, Marina del Rey, CA 90295 or noexit@mindspring.com.

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An earlier version of this story incorrectly stated that a mortgage payment covered both what is owed on the mortgage and association dues. In fact, the payment only covers the mortgage and dues are paid separately to the association.
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