Should HOA Assessment payments impact credit score?

By Deborah Goonan, Independent American Communities

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This week, Sperlonga – a data analytics firm – announced its intention to team up with Equifax on tracking payments of assessments to Association-Governed Developments such as homeowners, condominium, and cooperative associations.

You can read some recent news releases here:

Your HOA Payments May Now Affect Your Credit Score

Sperlonga, Equifax to record HOA payments for credit scores

Brief explanation:

“Property owners that pay HOA fees on time should begin to see the similar impact to their credit reports as they would with other payment obligations traditionally found in a credit report, while associations and property management companies should begin to see reduced delinquencies and improved cash flow,” Martin said. “Our goal is to empower homeowner associations and management companies with the same credit reporting tool that banks and lenders already use to manage consumer debt and credit-related payments.”

But…Is this a good idea?

Supporters are spinning this as another way for on-time payers to improve their credit scores, and a tool that HOAs can use to convince homeowners to bring their assessment accounts current.

But critics have concerns about treating HOA assessments the same as mortgage or car loan payments. An Association-Governed Development does not generally provide financing for consumer goods such as homes, automobiles, clothing and apparel, or home furnishings – things commonly financed with consumer loans and revolving credit accounts.

Simply put, HOAs primarily provide community and infrastructure maintenance services, not goods or lines of credit.

As service providers, HOA collection and reporting practices should be under investigation of the Consumer Finance Protection Bureau (CFPB). An informative guide, Consumer credit reports: A study of medical and non-medical collections, summarizes collections and reporting practices of service providers in the U.S.

Looking at the Sperlonga news release again, take note of how and when HOA assessment payments will be monitored and reported to Equifax:

Sperlonga will use its technology to automatically extract assessment payment data and account status every month for all HOA property owners, according to a release. It will then report the account data to Equifax.

Reporting data to a credit bureau on a monthly basis would exceed credit standards of local governing bodies or landlords, even though the typical HOA provides equivalent services.

Landlord-Tenant disputes

Landlord tenant laws generally allow a tenant to withhold part of all of rent payments to cover the cost of maintenance and repairs that the landlord fails to address in a reasonable amount of time. If that doesn’t resolve the matter, the landlord must take the matter to court to issue a judgment against the tenant. At that point, an unpaid judgment can be reported to a credit bureau.

6 surprising things that won’t hurt your credit score

Excerpt:

Let’s say you’re withholding your rent because you’re in a dispute with your landlord, or you’ve broken a lease. “That doesn’t show up on your credit score unless your landlord takes you to court and a judgment is entered,” says Kelley Long, certified public accountant and a member of the American Institute of CPAs’ Financial Literacy Commission

Read more: http://www.creditcards.com/credit-card-news/6-things-that-wont-hurt-credit-score-1270.php#ixzz481o2cLVA

Now, what if a homeowner has a legal dispute over assessments? For example, supposed the association is failing to provide maintenance services. Or maybe the association has issued a fine over a disputed violation of the covenants and restrictions.

Why should one late or missed HOA assessment payment be immediately reported to Equifax, when those payments are disputed?

Shouldn’t a homeowner have at least the same legal protections as a tenant?

HOA vs. Local Taxing Authority

To look at it another way, let’s compare assessment payments to property tax payments. After all, Community Associations Institute (CAI), is fully supporting federal legislation that would allow for a tax deduction for HOA assessments. They fully acknowledge that HOA assessments are akin to property taxes, in that they pay for similar services.

So let’s follow that line of thinking.

The reader may be wondering, if and when your local taxing authority reports late payments to a credit bureau. It turns out, that does not happen until the taxing authority places a lien on a property, and that typically takes a year or longer. That’s because the taxing authority exhausts all efforts to allow the property owner to pay amounts owed before filing a tax lien.

Does a Tax Lien on Your House Affect Your Credit?

Excerpt:
While some creditor’s debts affect the score immediately, other creditors must obtain a judgment before their debts will appear on the report. The authorities who collect taxes don’t regularly report to the credit bureaus, so late payments won’t hurt your score. However, if your property taxes are delinquent long enough, the taxing authority will file a tax lien against your property, which remains until you pay what you owe. Because the tax lien is similar to a judgment, it will appear on your credit report.

http://homeguides.sfgate.com/tax-lien-house-affect-credit-51605.html

How long does it take until a taxing authority files a lien and notice of foreclosure sale? It varies from state to state, but, for example, in San Francisco, California, the process takes up to five years. The City of Pittsburgh encourages homeowners to report a hardship and arrange for payment plans, rather than immediately reporting late payments to credit bureaus.

Of course, when a local taxing authority finally gets around to filing a property tax lien and schedules a foreclosure sale, the homeowner’s credit rating will be negatively affected for 7 years – even if the homeowner eventually pays the tax lien during the redemption period, and retakes possession of the home. But in many cases, a homeowner can challenge the amount of the tax assessment, and reach a compromise to settle the debt.

How often is a financial compromise or home redemption opportunity extended by an HOA?

And why is it that a local taxing authority takes multiple steps to avoid recording a lien, waiting until that point to make reports to credit bureaus, but now HOAs will be permitted to wreck a homeowner’s credit over as little as one missed – or disputed – assessment payment?

Those are important questions we should all pose to our State and Federal Legislators.

#ValueMyRights

 


3 thoughts on “Should HOA Assessment payments impact credit score?

  1. PETITION CFPB – TILA Protections for Homeowners Subject to HOA Homeowner Association Credit Reporting of Financed Assessments

    PLEASE VOICE YOUR CONCERNS TO CONSUMER FINANCE PROTECTION BUREAU (CFPB) http://www.consumerfinance.gov

    TILA Truth in Lending Act could, potentially, offer homeowners protection from:

    1) HOA non-judicial foreclosures and 2) HOA forced arbitration – regarding financed HOA assessments.

    Should TILA (Subpart E 12 CFR 12 CFR 1026.36(h))1 apply to financed homeowner association assessments (i.e., credit transactions secured by consumer’s principal dwelling) based any of the following:

    1) There is a contract with the HOA (CC&Rs) providing for “financed” assessments,

    2) HOA assessments are financed as credit and secured by the consumer’s principal dwelling (similar to a HELOC) in which the HOA has power to lien and non-judicially foreclose for any unpaid financed assessments and associated costs, such as late fees, collection costs,

    3) HOA assessments are reported to credit reporting agencies as credit? 2

    In several states, including Nevada, HOAs may non-judicially foreclose on consumers’ homes using super-priority lien laws to extinguish their first deeds of trust. 3

    Furthermore, Nevada requires (unconstitutional) cost-prohibitive forced arbitration prior to commencement of a consumer/homeowner’s foreclosure defense legal action.

    HOAs may, at very little cost, non-judicially foreclose, while the huge financial burden is on the consumer/homeowners to complete very cost-prohibitive forced arbitration to protect their homes.

    Presently, there is a huge risk of fraud (foreclosures) to consumer/homeowners, banks, Fannie Mae, Freddie Mac (i.e. U.S. Taxpayers!) because there is no oversight over these”financed” assessments secured by consumer’s principal homes.

    Enforcement of TILA could, potentially,

    1) Prevent financial fraud and fraudulent foreclosures based on HOA assessments (unregulated credit transactions);

    2) Prohibit states’ cost-prohibitive forced arbitration involving HOA assessments;

    3) Prohibit non-judicial foreclosures involving HOA assessments.

    These TILA protections would greatly benefit consumer/homeowners, banks, Fannie Mae and Freddie Mae (i.e. U.S. Taxpayers) and I would certainly appreciate any help you can provide.

    Thank you very much for your help.

    Footnotes:

    1 Prohibition on Mandatory Arbitration or Waivers of Certain Consumer Rights—12 CFR 1026.36(h) A contract or other agreement for a consumer credit transaction secured by a dwelling (including a HELOC secured by the consumer’s principal dwelling) may not include terms that require mandatory arbitration or any other non-judicial procedure to resolve any controversy arising out of the transaction. In addition, a contract or other agreement relating to such a consumer credit transaction may not be applied or interpreted to bar a consumer from bringing a claim in court under any provision of law for damages or other relief in connection with an alleged violation of any federal law. A creditor and a consumer, however, could agree, after a dispute or claim under the transaction arises, to settle or use arbitration or other non-judicial procedure to resolve that dispute or claim.

    2 https://www.sperlongadata.com/press-release/Sperlonga-Press-Release-Post-Launch_9-27-16_Final.pdf

    3 SFR Investments Pool 1, LLC. v. U.S. Bank, N.A., http://www.ballardspahr.com/alertspublications/legalalerts/2014-09-19-hoa-lien-extinguishes-first-deed-of-trust-in-foreclosure-nevada-supreme-court-holds.aspx

    Please note – none of this is legal advice. Thank you.

    Like

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