Why your community needs a written delinquency policy

Posted by Jeff Hardy on October 15, 2014


It was a few years ago. I stood by my mailbox and read with a growing sense of horror the latest communique from the Board of Directors of my homeowners association. What I received was a draft for a new late fee policy to affect all of the homes within this self-managed resort community.

The sense of horror came because, having been in community management business for a number of years, I immediately recognized that the policy violated state law. It exceeded the maximum late fee allowed under the law. 

Based on my recommendation, the Board checked with an attorney who was familiar with state laws affecting common interest communities and, sure enough, when the final policy was adopted, it had been changed to comply with state laws.

A written delinquency policy will help reduce delinquency levels and reduce the chance that your community will face discrimination claims

It may be more of a cautionary tale than a horror story, but this story illustrates two very important points:  First, every community needs to have a written delinquency policy, of which charging late fees is a part.  And, second, the policy should be reviewed by the community’s attorney to make sure it is reasonable, legal and complies with state law.

Advantages of a written delinquency policy

Having a written policy has several advantages, which work to protect the community.

  • It communicates to homeowners how delinquencies are going to be handled which encourages homeowners to stay current in their dues payments.
  • It provides uniform treatment for handling delinquents thus reducing the chance of a counter lawsuit by an owner claiming discrimination in the way their case was handled.
  • It establishes escalating steps in the collection process giving homeowners a reasonable chance to pay their past due assessments before more drastic action is taken.
  • It lays out the late fees and other penalties that will be incurred by a delinquent homeowner so there are no surprises or grounds for dispute.
  • It is a policy that can be passed from one Board to the next so that there is no confusion about what the community’s delinquency policy is and how delinquent owners are handled.

The area of law under which a Condo or HOA is established and under which it operates is civil law.  It is based on the “reasonable man” test, meaning, what would a “reasonable man” do in a particular situation.  Handling delinquent owners who owe the same amounts for the same period of time in different ways is grounds for a discrimination charge. It leaves the community open to having to defend itself legally as well as possibly having to pay the aggrieved owner damages. It only makes sense to eliminate this risk with a written delinquency policy.

What are the components of a delinquency policy?

  1. The policy should state, probably in the opening paragraph, the section from the Declaration of Covenants or Articles of Incorporation, which give the community the authority to assess its members and take action to collect these assessments. This reminds the homeowners that they agreed to this obligation and that the Board has the power to enforce collection.
  2. The delinquency policy should establish steps against a timeline for sending notices and letters. Each step should mention the action to be taken and any penalties, such as late fees, that will be assessed. For example, step one in a delinquency policy might be:
Assessments are due on the 1st of each month. After 15 days, if payment has not been received, a late fee of $10.00 is charged and a Late Notice is sent reminding the homeowner that they have missed a payment and requesting immediate payment to avoid further late fees and collection action. This notice is to be sent by first class mail unless the owner has opted into email for Notices and Letters, in which case, the email would be sent with a return receipt requested.”

As you can see, this sample first step identifies the action to be taken, when the action should be taken (the timeline) and the penalties that are being assessed. It also specifies how the notice is to be sent to the homeowner. Each step in a delinquency policy should have similar elements.

Having a written delinquency policy is a smart decision for every community. It will help reduce delinquency levels. It will also reduce the chance that your community will get into a legal dispute with homeowners claiming discrimination in the way the collection of their delinquent balances were handled. But, in order to be of maximum effect, it should be published or distributed yearly to all homeowners to continually remind them of the consequences of making late payment.

A sample delinquency policy is available for download. This may assist you in developing a written delinquency policy for your community.  However, any policy you consider should be reviewed by an attorney who is familiar for Condo and HOA law in your state to make sure it complies with your state and local laws.

sample delinquency policy