What you can do when you are behind on your HOA dues

woman uses magnifying glass to check contract
I get calls with this question a couple of times a week, so I decided it was time to post an article in order to help people with this scenario.

The caller lives in a homeowners association (HOA), and for whatever reason fell behind in their association dues. Eventually, they owe more than they can pay, so they contact the HOA or go to an HOA meeting and nicely asked for a reduction of the total amount owed. Alternatively, they might be willing to pay the full amount, but request that the HOA permits payments.

In some cases the caller may be especially upset because in addition to the unpaid dues, the HOA has slapped on significant late fees. In the worst cases, the HOA has turned the matter over to their attorney, who has initiated a foreclosure process and added thousands of dollars in attorney fees to the amount owed.

The caller needs help. The want to hire me to take one or more of the following actions:

1. Force the HOA to accept payments.

2. Sue the HOA, seeking to remove the amounts the callers deems to be unfair, such as the late fees.

3. Defend against the foreclosure action, and in doing so get the amount owed reduced.

To determine if any of these actions are viable, you need to have the proper point of reference.

To keep the math simple, let’s assume an HOA has 100 members, and it costs $100,000 per year to do all of the things the HOA must do. Doing the math, each member therefore must pay $1,000 per year to keep the HOA going.

Now comes along a member who because of a stretch of bad economic luck cannot pay their dues for a given year. He goes to the HOA, tells the board members that he’s struggling, and asks if they would consider reducing the unpaid dues to $500.

If the kindly board members agree to the reduction, that means each of the remaining 99 members have to pay extra to make up for the loss. For that reason, the board members should NEVER agree to a reduction in the amount owed. Arguably, they violate their fidicuary duty to the other members if they do so.

OK, but what about late fees and attorney fees?

Late fees provide a little wiggle room, because they aren’t actual expenses. The board could agree to waive any late fees, but that raises the slippery slope issue. If they accept one member’s hard luck story and waive the late fees, what do they do with the next member who fails to pay? If they create a situation where no one is paying their dues on time because they all know the board will waive any late fees, that is a problem.

Attorney fees are differnent. Again, those are a real cost. If they pay an attorney $2,500 to commence legal action against you, those are real dollars that must be reimbursed. Just as with agreeing to reduce the outstanding balance and making the other members make up the difference, it is not appropriate make the other members pay out of their pockets because you were unable to keep current on your dues.

OK, so now that you have the proper mindset, let’s go through the list of actions the callers want me to take.

1. Force the HOA to accept payments.

The HOA is free to accept reasonable payments, since no one has to make up the total amount owed. But the HOA is not required to accept payments.

Some callers are really frustrated because they were actually presenting payments, and the HOA was refusing them. HOAs sometimes do this out of fear that if they accept a partial payment, the member will claim the HOA was agreeing to payments. No attorney can force an HOA to accept payments.

2. Sue the HOA, seeking to remove the amounts the callers deems to be unfair, such as the late fees.

Here is the problem with any potential lawsuit. THE CALLER OWES THE MONEY! Even if I go to court and convince a judge that the late fees were unnecessary or inappropriate, the caller is going to lose the case as to the unpaid fees. That will make the HOA the prevailing party, and the member will have to pay all the attorney fees incurred by the HOA.

Conceivably, the member could bring what is called a declaratory relief action, seeking a judcial determination only as to the late fees. But it is unlikely that the economics of such an action would ever work.

3. Defend against the foreclosure action, and in doing so get the amount owed reduced.

See number 2. The member can’t prevail on the action, because the dues are owed.

There is one method I have sometimes seen work under these circumstances, where the member seeks only to have the late fees or attorney fees reduced.

As stated, you can sue for what is called declaratory relief, but that can only be done in Superior Court (not small claims), and it will cost you thousands of dollars if you hire an attorney. This traditional approach is just not very practical because of the amount involved.

But here is my patented Small Claims Court procedure that can solve the problem for about $50. Pay the amount under protest, and then sue to get it back. Small Claims Court is not a court of equity, it can only award damages. This means that you cannot go to Small Claims Court to declare that you do not owe the money. But you can accomplish the same thing by paying the money under protest and then suing to get it back. The judge will then have to make the determination that you never owed the late fees.

The way this scenario usually arises is when the member is talking to the HOA, trying to work something out. In the midst of the discussions, the HOA hires an attorney and files legal action. The member justifiably feels that this action was unwarranted, and therefore the attorney fees were unnecessarily incurred.

Go ahead and run it past a judge in Small Claims Court. Show the judge that the HOA unneccsarily pulled the trigger on the lawsuit. If you are persuasive, the judge may disallow the attorney fees and award them back to you.

Be forewarned, however. This approach is too sophisticated for some judges. With these judges, the conversation will go something like this:

“Your Honor, I’m seeking reimbursement of the $2,500 I paid to the HOA for the attorney fees they added to my dues assessment, which I paid under protest.”

“But didn’t you owe the money to the HOA?”

“No, your Honor, that’s the point. On April 1, 2016, I attended the HOA meeting and presented a check for the full amount of my past due HOA dues. The board members said they have no mechanism to accept a check in person, and asked me to mail it to the management company. Three days later I did just that, but in the interim the attorney for the HOA placed a lien on my property, and the HOA added the $2,500 in attorney fees to my outstanding balance. It was a clear problem with communication between the Board and the management company, which really does not make sense because a representative of the management company was present at the meeting. There was no reason for the HOA attorney to lien my property, when I had attempted to tender the full amount that was owed. I never owed the money to the HOA, but I paid it under protest so that I could sue in Small Claims Court to get it back. Otherwise, there is no simple mechanism to have a court determine that the amount is not owed.”

“Why would you pay the money if you didn’t owe the money?”

“Because, again, there is no other realistic mechanism. I could have filed a declaratory relief action, but that would cost far more to prosecute than the amount in controversy here. I don’t have the thousands of dollars it would take to sue in Superior Court to have the matter decided, so paying the money under protest and then suing to get it back affords a very streamlined approach and saves judicial resourses. It’s certainly better to have the matter decided here in just a few minutes than to take a valuable docket spot in a Superior Court for a year or more.”

“So you paid the money to defendant, just so you could turn around and sue to get it back? That’s the craziest thing I ever heard.”

“It was suggested to me by an attorney, who has written extensively on utilizing this streamlined process. A judge sitting in Small Claims Court has no equitable power, but under these circumstances, the matter can be decided simply by ordering the return of the money.”

“Well I doubt any attorney would recommend anything so crazy. I’m awarding judgment for the HOA, and don’t ever waste my time like that again.”

All you can do is hope you don’t get one of those judges.

I hope this helped. Of course, none of this can be taken as legal advice, because while I am an attorney, I am not your attorney, and an article cannot devine the particulars of your situation.

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