Homeowners are not the only ones who suffer the consequences of delinquent HOA dues. The association itself can face a lot of problems, too. When left unresolved, these problems can spiral and compound until the association is left with nothing to its name.

How Delinquent HOA Dues Affect the Community

To understand how delinquencies impact homeowners associations, you must first understand how these communities work. Homeowners and condo associations collect regular dues or fees from members. These associations then use these collected dues to fund the various expenses of the community. This includes everything from common area maintenance to HOA insurance.

It is the job of the HOA board to calculate dues on an annual basis. They do this by anticipating the expenses for the coming year and then dividing the sum required among the members of the community. Given that everyone in the HOA has a financial obligation to pay dues, you can easily see how nonpayment can affect the association. A high HOA dues delinquency rate can spell disaster not only for homeowners but also for the community at large.

1. Service Interruption

When too many homeowners fail to pay their dues, it could result in a budget deficit. The association won’t have enough money to pay for necessary expenses.

This can include landscaping services, garbage collection, snow removal, and more. Without these essential services, trees and bushes will start to grow out, trash will remain uncollected, and snow will pile up and obstruct roads.

Homeowners associations also pay for the utilities for each common facility. Clubhouses and fitness centers don’t pay for the electricity themselves. The board uses money from the operating fund, which sources its cash from HOA dues, to pay for all of these things and more. As such, if homeowners stop paying their fees, they can expect service interruption.

2. A Drop in Curb Appeal

HOA dues late payment can also negatively affect curb appeal. Associations usually cover the cost of landscaping as well as maintenance in common areas. If an HOA runs out of money, it can no longer pay for these services. This will unsurprisingly lead to a drop in curb appeal.

When bushes and branches become overgrown, they can give the neighborhood an unkempt feel. The same goes for cracked sidewalks, badly paved roads, and malfunctioning street lights. This gives the community a poor image and makes it seem like an unsafe place to live in.

3. Poorly Maintained Common Areas

Homeowners and condo associations typically have common areas and amenities that members can use. But, common areas that accumulate dirt and grime will remain that way without money to pay for cleaning. Worse yet, if these areas become damaged, a shortage in the budget might mean having to postpone repairs and replacements. When this happens, residents can’t use them. This is particularly unfair to residents who pay their dues on time.

If the association keeps these areas open even without proper maintenance, it can result in liability. For example, if algae builds up in the pool area, a resident could slip and hurt themselves. In some cases, the association may be found liable for the incident. The same principle applies to malfunctioning gym equipment, improper electric wiring, and poor plumbing systems.

4. Increased Dues

When there are many cases of HOA dues non-payment one year, it could push the board to raise dues for the next. Boards usually do this to make up for the shortfall in the budget or to ensure that they meet the budget requirement for the coming year.

Having to increase HOA dues is troublesome for both board members and homeowners. Residents don’t like it when they have to adjust their personal budget just so they can continue paying HOA dues. Meanwhile, board members don’t like having to deliver bad news, especially when it comes to money.

5. Special Assessments

A rise in delinquent HOA dues could also bring forth the need to levy special assessments. Boards do this when the association lacks sufficient funds to pay for immediate expenses, but some even charge this for less urgent needs. Many homeowners dislike special assessments because they typically need to pay this sum in one go. On the other hand, associations usually collect regular dues in increments, though some charge them annually.

6. Decreased Property Values

It does not take a rocket scientist to conclude that, when you combine all of the above, property values will naturally go down.

When an association lacks funds to pay for services and maintenance, curb appeal will decrease. And, as many know, curb appeal has a direct relationship with property values.

7. Drive Away Homebuyers and Current Homeowners

As property values in a community plummet, the number of interested buyers will decrease as well. Before long, your association will have a hard time attracting new homeowners and even scare away current homeowners. When you have poorly maintained common areas, abysmal services, and high HOA dues, this hardly comes as a surprise.

Worst Case Scenario: Bankruptcy and Dissolution of the HOA

Bankruptcy is not something that often happens to homeowners or condo associations. But, that does not mean it will forever remain an impossibility. Under certain circumstances, an association may go bankrupt.

As homeowners begin to leave and properties foreclose, an HOA with expensive dues and unsatisfactory services or amenities can face insolvency. When an association completely runs out of money and members, it can even result in dissolution. All of this would have been avoided, though, if the board simply cracked down on delinquent HOA dues and established methods for collecting unpaid fees.

How to Collect Delinquent HOA Dues With Software

Many homeowners associations grapple with delinquent HOA dues. Boards usually find it difficult to collect unpaid dues, especially if homeowners are having financial troubles. More often than not, though, this difficulty stems from a lack of a proper system. With the help of HOA software, you can tag owners as delinquent, generate delinquency reports, send account balances, and follow up on payments.

Condo Manager provides expert collection solutions to homeowners and condo associations everywhere. Call us today at (800) 626-1267 or contact us online for a free demo of our product.

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It is important for homeowners associations to utilize collection actions when members default on their dues and assessments. This is where an HOA lien on the property comes in handy.

What Is an HOA Lien?

Homeowners associations operate using a membership format. When someone buys a house in an HOA community, that person automatically becomes a member of the association. That means they will now have to abide by the association’s rules, which include fulfilling member obligations. One of these obligations is to pay regular dues to the HOA.

The dollar amount of dues can vary from one association to another. It can even change on a yearly basis depending on certain budgetary factors. What does not change across all HOAs, though, is that owners are obligated to pay these dues. The association will then use these payments to fund various expenses related to maintaining the community.

So, when does an HOA lien enter the picture?

When there are payment obligations, there are bound to be nonpayers. Homeowners might default on their dues for any number of reasons. And while there are a handful of actions an HOA board can take to collect these unpaid dues, an HOA lien is perhaps one of the most effective.

Simply put, an HOA lien is the association’s legal claim on an owner’s property. Liens make it significantly harder for a homeowner to sell or refinance their house since they cloud the title. But, an HOA can also choose to initiate foreclosure proceedings after filing the lien.

How Does a Homeowners Association Lien Work?

Typically, a lien will automatically attach to a delinquent owner’s property. Sometimes, though, an HOA will need to record the lien with the county recorder’s office. This serves as a public notice of sorts, proving that the lien, in fact, exists.

In addition to the unpaid dues, the owner may also need to pay other fees related to the lien. Though, this can change depending on the association’s governing documents. Additional costs can include any late fees, attorneys’ fees, and interest.

After the owner satisfies their debt in full, the HOA will then need to record an HOA lien release with the county recorder’s office. The timeframe will depend on state or local laws, though associations generally have 21 days to file this release and send a copy of the release to the homeowner.

What Comes Next? Homeowners Association Foreclosures

Most of the time, the mere existence of the HOA lien is enough to scare delinquent owners into paying their debts to the association. Other times, though, the association must take it one step further. This often means foreclosing on the lien to satisfy the debt.

An HOA lien foreclosure works, in most ways, like your standard home loan foreclosure. If state laws and governing documents permit, associations can even foreclose on a home that has a mortgage on it. There are two methods of foreclosure — judicial foreclosure and non-judicial foreclosure.

• Judicial Foreclosure. This type of foreclosure normally takes more time and work as it requires the HOA to go through court. Using this method, your HOA will need to file a lawsuit and obtain a court judgment against the homeowner. This judgment will allow the HOA to sell the home to satisfy the owner’s debt.
• Non-judicial Foreclosure. This type of foreclosure only requires your HOA to follow state-mandated foreclosure procedures. Using this method, there is no need to go through court. Therefore, it is much easier.

Keep in mind that some states place specific limitations on when HOAs can foreclose. For instance, California Civil Code Section 1367.4 only allows associations to foreclose if unpaid dues reach $1,800 or are at least 12 months old. It is important to familiarize yourself with your own state laws to avoid liability. You can also consult an attorney for guidance.

What Happens After Foreclosure?

Some HOA boards feel apprehensive about foreclosing on an owner’s home because they believe that the first mortgage will then fall under the association’s responsibility. But, this is a common misconception. Even if the first mortgage remains on the property after the HOA assumes ownership of the property, the mortgage does not transfer to the association. The homeowner (or borrower) is still liable for the mortgage since it is their name on the promissory note.

Most of the time, the borrower will stop making mortgage payments, though they may have already stopped long before the foreclosure. When this happens, the HOA can either continue paying the mortgage (though it is not required to do so) or allow the first mortgage holder to foreclose. It is common for HOAs to choose the second option because it usually means you get to welcome a new paying member into the community.

What Is a Homeowners Association Super Lien?

If an HOA forecloses on a home, its lien holds priority over all other liens and encumbrances. This is usually the case for most associations according to state laws or their governing documents.

But, there is an exception to this rule. In most scenarios, the HOA lien on the house does not hold priority over the first mortgage or deed of trust recorded prior to when the dues turned delinquent. As such, the first mortgage lien will remain attached to the property even after the HOA forecloses on the home.

In some states, though, the homeowners association’s lien receives priority even over the first mortgage. This is what is referred to as an HOA super lien. With a super lien, the HOA’s lien holds priority over all other types of liens, subject to certain limitations. For instance, in Nevada, nine months’ worth of unpaid dues receive super lien status.

If an HOA lien holds super lien status, foreclosure sale proceeds will first be used to pay the owner’s debt to the association up to a certain amount or months’ worth of unpaid dues. The first mortgage holder will then receive the remaining proceeds from the sale. Any surplus funds after that will go to junior lienholders.

Making Collection Efforts Easy

An HOA lien is a useful collection tool that permitted homeowners associations can employ. Understanding the ins and outs of liens and super liens, though, can prove to be a challenge. Sometimes, the best way to minimize delinquencies is to make payments more convenient for members.

This is where Condo Manager comes in. Using HOA software, members can settle their dues online or via ACH draft. Your HOA board can also easily track delinquencies and generate analytics. Call us today at (800) 626-1267 or contact us online for a free demo.

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There are many homeowners associations that accept ACH payments for HOA dues. But, that does not mean it is the right choice for everyone. Should yours do the same?

The Thing About ACH Payments for HOA Dues

Paying dues is a common pain point among homeowners living in HOA-run communities. Although there are some that use a quarterly or annual setup, homeowners association payments are typically made on a monthly basis. This makes both making and collecting payments a bit of a chore, especially if you still use physical checks. Homeowners must mail in their checks, while board members must deposit the checks every month.

To make payments more convenient for everyone, many associations have turned to electronic methods such as ACH. What are ACH payments? ACH, which stands for “automated clearing house,” is a method that processes transactions between financial institutions with the help of an electronic network.

Here are some key traits you must know about ACH payments:

• They work with both direct debit and credit transfers.
• There are different processing times, playing in the range of 2-5 days.
• They typically come with transaction fees, though lower than standard credit and debit card transactions.
• Billing still requires authorization.

Can Your HOA Require ACH Payments for HOA Fees?

ACH payments are relatively easy to set up. All you need to do is coordinate with your bank and obtain certain bank information from homeowners.

The problem, though, does not lie in whether or not you should accept ACH payments for HOA dues. Given how convenient they are, if owners want to pay using ACH billing, your board should definitely consider making it available. The real problem lies in whether or not you can (or should) require ACH payments.

Making ACH payments mandatory is dangerous territory. Depending on where you live, certain state laws may prohibit an association from forcing owners to use ACH billing. There have also been cases where an HOA would allow owners to pay quarterly if they use ACH but annually if they use traditional checks. Be careful with such a setup because it may not be permitted by state laws or your governing documents.

Additionally, the topic of ACH payments naturally brings up security concerns. Homeowners may feel unsure about giving their bank information to the HOA if there are no security measures in place. All in all, requiring ACH payments is not a good idea, though you can consult your attorney to go through your options.

The Rise of Money-Transfer Apps

Technology has made it significantly easier to transfer money from one account to another. Money-transfer apps, in particular, have gained popularity because of their lower fees, ease of use, accessibility, and speedy transfers. But, can an HOA use money-transfer apps like PayPal and Venmo to collect dues?

It depends on where you are. State laws and your governing documents may or may not allow it. Even if your association is permitted to use money-transfer apps, there are a few points of concern you must address.

Surcharge and Transaction Fees

Many money-transfer apps charge fees either for each transaction or as a regular subscription. It is important to establish who will shoulder these fees — the HOA or the homeowner. If the HOA will pay it, then you won’t get the full dues amount. On the other hand, you may face opposition from owners who refuse to cover the transaction fee, which they may view as an additional cost on their part.

Security

As with ACH payments for homeowners association dues, money-transfer apps can also have problems with security. Accounts can be hacked, and the burden of security rests with a third party (PayPal, Venmo, etc.). Does your HOA board trust the security measures of these apps?

Access

Money-transfer accounts should be controlled by multiple people from the board — not just a single person — to prevent theft. This is true for ACH payments as well. Additionally, if your HOA chooses to use money-transfer apps, make sure to create an account for the association. Never use personal accounts.

Problems with Using Board Members’ Personal Accounts

As touched upon previously, board members must never use their personal bank or money-transfer accounts to collect owner dues. There are many problems that can arise out of using personal accounts.

For one thing, it is not secure. Because only one person has access and control of the account, it is very easy to manipulate the funds. This makes your association vulnerable to fraud and embezzlement. Even if the board member handling the account is very honest, your board should not risk even the perception of impropriety.

There are also some states with laws against this. For instance, in California, Civil Code Section 5380 prohibits commingling association funds with another party’s personal funds. Therefore, your HOA should always have its own association account.

Lastly, there is the issue of continuity. God forbid, if something happens to the person with sole control over the account, the board would have a hard time gaining access to the HOA’s funds. An association account, though, typically requires multiple signatories. But, you should make sure to change signatories when there is a change in board members.

Automating ACH Payments for HOA Dues With Software

If the homeowners in your community are willing to make ACH payments, then you should certainly consider offering it. After all, it is a convenient payment method for everyone involved. You can make it even easier, though, with the help of HOA software.

HOA management software allows owners to link their bank information to their resident accounts. From there, you can process ACH drafts with only a few clicks. Let the software automatically generate a NACHA upload file, which you can submit to your bank to process the payments.

Get With the Times

Given how technology has evolved in the last decade or so, convenience is something that many owners expect in their HOA communities. Electronic methods are the future (and present) of payments. And while you can make use of money-transfer apps (which have their own points of concern), another way is to accept ACH payments for HOA dues. ACH payments tend to have lower fees and can be largely automated with the help of HOA software.

If your homeowners association is in need of the right management software, Condo Manager is the way to go. Aside from ACH drafts, our software comes with a variety of modules designed to help manage communities. Call us today at (800) 626-1267 or contact us online for a free demo.

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• What Payment Methods Should Be Made Available For Homeowners?
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Increasing HOA fees are a huge pain point for many members of an HOA-run community. But, can an HOA board even legally raise the fees?

Increasing HOA Fees: It All Starts With Budgeting

To truly grasp the need for fee increases, you must first understand how homeowners associations work. Homeowners associations exist to maintain the community and protect property values. This includes coordinating and paying for various expenses such as landscaping, maintenance, repairs, and the like. And the money used to pay for these expenses comes from the homeowners, who automatically become members of the HOA when they purchase a home in the community.

But, how exactly do HOAs determine how much to charge homeowners?

Every HOA community is run by a set of elected board members who are responsible for creating an annual budget. They do this by anticipating the expenses for the coming year based on historical data and a number of other factors. Once they determine how much the HOA will need for the coming year, they will divide that among the homeowners in the community, including themselves. Whether or not the amount is divided equally or based on a percentage will depend on what your governing documents say.

This is how an HOA board calculates its regular dues or fees.

Why Would an HOA Need to Increase HOA Fees?

The HOA board repeats the process of creating a budget and determining the fees every year. As such, changes will naturally occur. For owners, the idea of increasing homeowners association fees may be unwelcome. But, there are a couple of possible reasons for a dues increase.

1. External Economic Factors

This refers to factors beyond the HOA’s control, such as inflation, wage increases, and the rising cost of goods. Although your association may not directly utilize labor or materials, your vendors surely do. And, if your vendors hike up their rates as a result, your HOA will certainly follow.

2. Not Enough Reserves

Another reason why your board would need to update HOA fees is to meet the right reserve level. During the budgeting process, your board will need to allocate funds for operating and administrative expenses. A portion of the funds, though, should also go to your reserve fund.

The reserve fund is an account designated for major repairs and replacements in the future or for unexpected costs that arise. Associations must meet a certain percentage in their reserves (obtained through a reserve study) to have what is considered a healthy reserve level. Maintaining the proper reserve level will eliminate the need for special assessments when major replacements or repairs inevitably come up.

If you don’t have well-funded reserves, the need to levy special assessments or increase regular dues will also arise. It just means you will have to charge a significantly higher fee to meet your budget deficit.

Increasing HOA Fees: What Do State Laws Say?

Even though an HOA board can raise dues according to their budgetary needs, they don’t always have unlimited freedom in this aspect. Some states restrict fee increases or limit how much a board can charge on a yearly basis. There are also laws that require boards to obtain approval from the membership if they want to increase fees by a certain percentage.

For instance, according to Section 33-1803 of the Arizona Revised Statutes, homeowners associations are not allowed to raise fees by more than 20 percent per year without getting a majority vote from the membership. Since state laws can vary, though, it is best to check with your legal counsel before taking action.

For board members, it is important to know these limits to avoid potential liability. For homeowners, it is important to know these limits to keep the board in check. But, it is equally vital that owners understand that dues increases are sometimes necessary to keep the community in good condition.

Increasing HOA Fees: What Do Your Governing Documents Say?

Sometimes, state laws remain silent or defer to an association’s governing documents for fee increase regulations. You will usually find such limitations within your CC&Rs, though they are more common in older developments than newer ones. No two HOAs are exactly alike, so the restrictions in one community may differ from yours. More often than not, an association’s CC&Rs will limit increases by a fixed percentage or a dollar amount.

Homeowners may feel relieved to know that their association has such limitations in place. But, when these limitations are too extreme, it can hurt the community in the end. When the board can’t collect the necessary funds because of the restriction, it may not meet the budget. This will force the board to cut corners or eliminate certain expenses altogether. The community and its common areas will then inevitably deteriorate, causing curb appeal to fall and property values to plummet.

How to Avoid Increased HOA Fees

One of the most effective ways to avoid increasing HOA fees is to budget smartly. An HOA board should not allocate more funds than it needs to pay for expenses. No frivolous spending.

It also helps to actively look for ways to save money without sacrificing quality. You can do this by investing in energy-efficient systems. Even adopting a simple schedule for sprinklers and making sure to turn off the lights when not in use can save you money in the long run.

Additionally, your HOA board should do its due diligence when picking out vendors. Don’t just go for the first vendor you see — nor is it wise to only go with the cheapest one possible. Send out a request for proposal and examine each candidate closely. Weigh out their fees against the services they offer. You can also try asking for a discount, especially if you have been working with the same vendor for years.

Finally, while it may not seem like it, investing in HOA management software can help you save money, too. HOA software comes equipped with sophisticated accounting and financial management modules that can analyze your spending. This will make it far easier to see where your HOA is overspending.

Part of the Job

Increasing HOA fees are simply a normal part of living in an HOA community. As a board member, it is your job to ensure the proper maintenance of the common areas. If that means having to raise dues, then so be it. You might get some pushback from homeowners, but it is important to clearly explain to them why the increase is necessary. Remind owners what the fees are for and that low fees don’t always benefit the association.

Are you having a hard time with budgeting and calculating fees? Do you need accurate reports that analyze your HOA’s spending? Condo Manager can help with all that and more. Call us today at (800) 626-1267 to learn more about our software or contact us online to get a free demo.

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• Your Ultimate Guide to HOA Fees
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Dues collection is often a pain point for many homeowners associations. If you struggle with this aspect of community management, setting up electronic payments for HOA fees may be the answer to your problem.

The Benefits of Using Electronic Payments for HOA Fees

Homeowners have an obligation to pay dues to their association, and the HOA board is responsible for collecting them. While there is nothing wrong with pursuing the traditional method of collecting dues, there are a few key benefits that an electronic setup offers.

1. Save Time

Online HOA dues payment is a time-saving option for both residents and the HOA board. The traditional way of dues collection — which involves mailing physical checks, recording them one by one, and then depositing them — is a time-consuming process. Using electronic means to pay and collect dues can save your treasurer a lot of time.

2. More Convenient for Everyone

When you utilize electronic payments for HOA fees, it is simply more convenient for all parties involved. Your HOA board does not need to manually process and deposit checks, while residents can pay their dues in an instant from anywhere with an Internet connection.

3. Reduce Instances of Late Payments

Homeowners miss payments all the time for any number of reasons. Sometimes, they don’t have time to write and mail in their checks. Other times, they simply forget. An HOA online payments system, though, can greatly reduce instances of late payments.

Depending on the platform you use, you can automatically withdraw payments or just make it generally more convenient for owners to pay their dues. Not having to physically write and mail in their checks can have a big effect on reducing delinquencies. This is beneficial to both the HOA and homeowners. With on-time payments, homeowners avoid incurring late fees and the HOA doesn’t have to worry about a budget deficit.

4. Track Payments Easily

Another benefit of electronic payments for HOA fees is you have an easier time tracking all the payments. Because everything is electronic, you can simply gain access to the online database and see which homeowners have not yet paid. It is also faster to pull up payment histories and records in case there are any disputes.

Selecting a Platform for Electronic Payments for HOA Dues

Today’s technology has made a wide range of options available for online payments. But, how do you know which one best suits your association?

Bank Transfers or Auto-Debit

There are two ways HOAs can use bank transfers to collect HOA dues online. The first is to have residents manually transfer money from their account to the HOA’s account. The second is to set up an auto-debit or auto withdrawal system.

If you go for the second option, you must check with your local bank to know whether there are any fees involved. Some banks charge setup fees or miscellaneous fees for this service. Though, if your HOA has a strong enough relationship with your bank, they may consider waiving these fees for you. It is also a good idea to ask for a sample of the reports you will get. This way, you can determine whether the reports are compatible with the software you are currently using.

Many associations use automatic withdrawals, and homeowners are fine with it because it is the same system used in many other services and utilities. But, that does not mean your board should let its guard down. Make sure to still oversee the entire process to catch any accounting errors immediately.

ACH or Electronic Checks

Automated Clearing House (ACH) payments are electronic checks that homeowners can use to pay their dues right from their checking account. With ACH checks, there is no need to write physical checks. Both ACH checks and wire transfers are bank-to-bank processes, though the main difference is that wire transfers are instant and ACH checks take longer. This is because ACH checks have to go through a clearinghouse, so payments may take up to three (3) days to appear in an account.

Third-Party Service Provider

If you would like to remove the bank from the equation, another option is to use a third-party service. There are many HOA website providers that come with an HOA payment portal. Several HOA management software also comes with built-in payment systems. If you want residents to pay HOA with credit card or debit card transactions, most providers offer those, too.

When deciding which provider to use, don’t just go with the first or cheapest option you find. Weigh the features they offer against the cost of the service. Make sure they have proper security measures in place to keep your HOA’s and the residents’ information safe and private. Find out how their customer support works in case a problem occurs (which can happen). Checking reviews is a good place to start.

What to Consider When Choosing an HOA Fees Electronic Payments System

Not all homeowners associations have the same needs and resources. What might work for one community may not necessarily be the best for another. Before you make a decision, take the following considerations into account:

1. Fees and Other Costs

For most associations, the first factor in the decision-making process is cost. How much will this service cost the association and its members?

As previously explained, partnering with a bank may come with a fee, whether the fee is for setting up the service or for every transaction. Talk to your local bank to know what methods they have available for your HOA. If you have a lot of owners signing up, they may be able to waive the fees entirely.

A third-party service provider might not have transaction fees, but it will require a sizable investment amount. Thus, this option will obviously be the most expensive one, though it usually does come with other features that make the product worthwhile.

2. Ease of Use for Homeowners

The entire point of using an electronic payment system is to make it more convenient for everyone. As such, you should consider the users. The system should be easy enough for homeowners to navigate, so much so that they will actively choose to use it over traditional methods.

You should also obtain homeowner feedback before actually migrating to an online system. For some communities, i.e. those with less tech-savvy residents, electronic payments may not make sense. You can also consider offering an electronic method while still retaining the traditional method of paying dues.

Bank transfers are simple enough, and most people already use them for other payments. But, if you adopt a third-party service, you must teach owners how to pay HOA fees online. Perhaps you can schedule an orientation of sorts to help them get familiar with the portal.

3. Accounting and Bookkeeping

Dues collection makes up a big part of your association’s accounting. Thus, you should make sure the option you choose can be integrated into your accounting and bookkeeping system with ease. If you currently use accounting software, ask your bank or third-party service provider to send you a sample of their report. This way, you can check whether the report can be uploaded without error.

On the other hand, it may be smarter to go with an accounting system or HOA software that already offers online dues payments. HOA management software is more comprehensive and comes with all the bells and whistles your board will need.

A Simple Yet Sophisticated Solution

Clearly, both your HOA and its members will benefit from adopting electronic payments for HOA fees. The hard part, though, is choosing what platform to use among all the options available. Although bank transfers and ACH checks offer their fair share of advantages, HOAs have more to gain from an HOA management software.

For that, Condo Manager has got you covered. We offer HOA software for self-managed associations and management companies alike. Call us today at (800) 626-1267 or contact us online for a free demo.

RELATED ARTICLES:

• What Payment Methods Should Be Made Available For Homeowners?
• Should Early Payments Of HOA Dues Be Encouraged?
• What Should An HOA Do With Late HOA Payments

When it comes to dues collection, late payments seem more like a common occurrence than early ones. But, should early payments of HOA dues even be encouraged?

Should You Allow Early Payments of HOA Dues?

Members of homeowners associations have an obligation to pay dues to fund the maintenance needs of the community. These dues can cover a variety of expenses, including but not limited to insurance premiums, landscaping, management fees, cleaning services, and security services.

All homeowners must pay these dues regularly, even the members of the HOA board. The fee amount is determined by the HOA board based on the planned annual budget and calculated according to the provisions of the governing documents. Owners must follow a payment schedule — be it monthly, quarterly, or annually. Those who miss the deadline can face penalties in many forms, though it typically involves late fees and assessing liens against the owner’s property.

You have probably heard of late payments and delinquent accounts in homeowners associations. It happens more often than you think. But, what about early payments of HOA dues? Should your HOA allow those? Should you charge a penalty for HOA dues early payments?

Early payments can actually be a good thing for the association. Not only do you get a bigger and more immediate influx of cash, but you also have fewer owners to worry about come collection time. Of course, while you can encourage early payments of HOA dues, you must avoid demanding or requiring it. Keep in mind that your governing documents will have a set deadline for dues payments. As such, even if owners do not pay early but still follow the deadline, you likely have no power to penalize them.

Monthly vs Quarterly vs Annual HOA Dues

Your association’s governing documents should tell you everything you need to know about dues obligations. This includes how often owners have to pay. Some associations allow owners to choose their own terms — monthly, quarterly, or annually. Meanwhile, others have a preferred or set term.

But, what if your association is still deciding on a payment schedule or has plans to amend it? Which option is the best? Let’s take a look at the pros and cons of each style below.

Monthly Setup

The monthly payment setup is more favorable to members because it allows for smaller budgeting. It is much easier to find $200 in their household budget every month than it is to find a lump sum of $2,400 at the start of the year. After all, many owners are likely salaried employees or are living paycheck to paycheck.

On the association’s side, a monthly payment setup can give you the ability to accelerate payments, provided your governing documents allow it. This way, if a member fails to pay one month, the HOA can accelerate the payments for the remaining months in the year. Your association is not afforded this remedy when it comes to annual collections.

However, this option also has its drawbacks. For one thing, your association will incur more administrative costs, such as the cost of sending out payment notices and account statements. You also need to send out delinquency notices if you have any delinquent owners in your community. From the members’ perspective, monthly payments give way to more late fees because there are more deadlines to miss.

Quarterly or Annual Setup

A major advantage of quarterly or annual payments is that it gives your association more money earlier in the year. This can act as a buffer in case you have delinquent owners. If you do have delinquent owners, annual or quarterly setups provide you with more time to go after them as well. For instance, if a member misses the deadline for a quarterly payment, you have three months before the next HOA payment is due, giving you time to collect.

In addition to this, quarterly or annual payments can also help reduce your administrative expenses. Less frequent payments mean fewer transactions, which means less frequent notices and letters as well as less work for the treasurer.

The downside, though, is that owners tend to have a harder time allocating money for a huge one-time payment. As previously explained, annual setups also don’t allow your association to accelerate payments.

Can You Offer Discounts to Encourage Early Payments for HOA Fees?

Some associations offer discounts to owners who pay their dues ahead of time.

While this can certainly entice more owners to pay earlier, it can also be misconstrued as penalizing those who choose not to or lack the money to do so. Again, this circles back to your association’s governing documents and whether or not your board has the authority to impose such a discount.

Moreover, every owner has to pay a set amount as determined by your budget. Discounting HOA fees early payments would mean your HOA has to collect less than what owners owe. If you choose to raise dues for those who don’t pay early instead, members might complain and claim discrimination. In some states, like Florida, it is even prohibited to offer discounted dues.

Similarly, you should not penalize someone who chooses to pay monthly instead of quarterly or annually if your documents allow monthly payments (and vice versa). Sure, quarterly and annual payments have their benefits, but your governing documents must take precedence. If you wish to only allow quarterly or annual payments instead of monthly payments, amend your documents first.

The Exceptions to the Rule

Monthly payments tend to involve more work, particularly for the treasurers of self-managed HOA boards. These treasurers have to prepare and send more frequent notices as well as make more frequent deposits to the bank.

If your board has a similar problem and would like to charge a fee for those who pay monthly as opposed to quarterly or annually, you may be able to justify the fee if it will cover the cost of processing the payments. Some boards also hire a bookkeeper or accountant to take over this kind of work, and the cost of their salary has to come from somewhere. As with everything else, you must first check your governing documents to see whether you can use this approach.

How to Help Your HOA Treasurer

Self-managed associations typically have a more difficult time with dues collection. You can divide the treasurer’s workload, though, by adopting one or more of the following strategies:

• Assign a co-treasurer to help prepare notices, collect dues, and deposit payments
• Assemble a finance committee to assist the treasurer
• Hire an accountant or bookkeeper
• Hire an HOA manager or management company
• Use an HOA management software

Invest in Good Software

Early payments of HOA dues are great for the association and should be allowed. But, that does not necessarily mean you should actively look for ways to make owners pay ahead of schedule. Sending an encouraging letter may be acceptable, but imposing penalties on those who do not pay early is crossing the line.

Collecting monthly payments and delinquent dues are huge pain points for board treasurers. Easily keep track of your association’s finances with the help of an HOA management software for self-managed associations. Call Condo Manager today at (800) 626-1267 to learn more or contact us online for a free demo.

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