By Deborah Goonan, Independent American Communities Blog
HOA C.U.R.S.E No. 2: (Consumer Unfriendly Regulatory Statute Example)
This week’s example comes from Florida, but many other states have similar provisions embedded in their Statutes.
What happens if a property owner (other than the developer) falls behind on assessment payments?
FL STATUTE According to F.S. 720.3085(3) a,b
(3) Assessments and installments on assessments that are not paid when due bear interest from the due date until paid at the rate provided in the declaration of covenants or the bylaws of the association, which rate may not exceed the rate allowed by law. If no rate is provided in the declaration or bylaws, interest accrues at the rate of 18 percent per year.
(a) If the declaration or bylaws so provide, the association may also charge an administrative late fee not to exceed the greater of $25 or 5 percent of the amount of each installment that is paid past the due date.
(b) Any payment received by an association and accepted shall be applied first to any interest accrued, then to any administrative late fee, then to any costs and reasonable attorney fees incurred in collection, and then to the delinquent assessment. This paragraph applies notwithstanding any restrictive endorsement, designation, or instruction placed on or accompanying a payment. A late fee is not subject to the provisions of chapter 687 and is not a fine.
You’ll notice that 720.3085 addresses priority of payments, the order in which money collected from an owner is applied to an outstanding balance. Interest, fees, and costs must be paid off before any money is applied to past due assessments.
Does this make sense?
If the primary goal is to collect assessments to provide for essential maintenance of common areas/elements, then the assessments ought to be paid first, not last. So if the owner’s balance due is $900, with $120 being assessments, any amount less than $900 would pay attorney and collection companies first. And since collection costs often far outweigh the amount of assessment delinquency, some owners can find themselves so deep in debt they can never climb out, even with a payment plan.
It’s important to notice that the bulk of payments offset attorney or collection company fees, plus late fees and interest. Little if any money reduces the assessment delinquency. The HOA may not get paid, unless a lien is filed and subsequently collected when the property is sold either by choice or by foreclosure. Even in the case of foreclosure, the lender is only required to pay the equivalent of 12 months of unpaid assessments. But in Florida, it takes an average of 2.5 years to complete a lender foreclosure, so delinquent assessments often exceed 12 months. And during that time, the fees continue to accumulate.
When the home eventually sells, the buyer is likely to reduce the purchase price to compensate for paying off the lien, top heavy with fees and collection costs. Lower purchase prices reduce comparable assessed values for properties in the same community. That has a negative effect on property values for homeowners.