When a property owner becomes delinquent in their obligations to the community association, often, they resolve their issues with a payment plan. An HOA payment plan can be an informal agreement with easy terms, but it needs to be signed and contain provisions that are not only reasonable but within the bounds of the association’s CC&Rs, state statutes, and federal statutes.
Payment plans are an important tool in every community association. Homeowners who fall behind on their monthly dues aren’t typically out to hurt anyone, they’re just ordinary people struggling with their bills. A core tenet of Axela’s operational model is ethical collections, and ensuring that we take a humane approach to a difficult situation, including payment plans.
Building an HOA Payment Plan
Payment planning seems like a straightforward practice, but it can have a few curveballs to consider. The list of requirements is pretty extensive, but specific details about the account aren’t the only things to think about.
- Terms and Length: Whatever terms and length make sense for your HOA and the delinquent homeowner, documenting these and including them in the HOA payment plan is necessary.
- Future Debt: The payment plan should consider not only the money that is owed today but also the money that will become due during the payment plan. For instance, let’s say your assessments are $500 a month and the owner owes 3 months-worth ($1,500). If the delinquent owner chooses a 6-month payment plan, it should include the 6 months during the payment plan, which would bring the total monthly payments to a minimum of $750 a month ($500 for the monthly assessment, plus $250 for ⅙ of the owed $1500).
- Late Fees and Late Interest: Any late fees and late interest prescribed in the CC&Rs will also need to be taken into account and added into the terms of an HOA payment plan (and make sure you check your state’s statutes to see if a payment plan reduces the late interest charged to the delinquent owner, as some states have those provisions).
What else should be in the payment plan for community associations? Here is an exhaustive list of what is required:
- Creditor’s name and address
- Debtor’s name and address
- Name and address of the collection entity servicing the payment plan
- Acknowledgment of the balance owed
- Amount owed
- Interest rate for late payments that appear in your CC&Rs
- Repayment period
- Frequency of installments
- Due date
- Payment instructions indicating how the payment will be remitted (credit card, ACH, check)
- Late payment charge as prescribed in the CC&Rs
- The state of governing law
- Contact information of the collection company
A payment agreement is not legally binding without written consent from both the creditor and the debtor. Signatures are legal proof that all parties acknowledge and accept the terms of the payment contract.
What NOT to Include in an HOA Payment Plan
As important as it is to know what should go into an HOA payment plan, it’s just as important to know what should not be included. For community associations, something to leave out would be a “confession” clause.
A confession of judgment is a legal device – usually a clause within a contract – in which a debtor (such as a delinquent homeowner) agrees to allow a creditor (an HOA or condo association, or a collection agency) to obtain a judgment against the debtor if a payment in this plan is not paid. This judgment is often made without advanced notice or a hearing.
In some states, confessions of judgment are not allowed. However, in the context of community association collections, a confession of judgment on a payment plan is not going to help the association in court. In fact, it could even hurt the association’s case or at least make it more expensive to prosecute.
If somebody defaults on a payment plan and refuses to pick it up, the association may (though will not always) move forward with a foreclosure action. If it is a judicial foreclosure in front of a judge, the defendant’s lawyer will make the payment plan’s confession of judgment an issue. This will change the subject from a foreclosure case to matters of procedure and condition precedent. Confessions of judgment are not helpful.
Confessions of judgment are permitted in Maryland, Michigan, Illinois, New Jersey, Minnesota, Ohio, Pennsylvania, Virginia, Texas, and Pennsylvania in some cases. So as a matter of policy for associations and management companies, don’t attempt to add this clause into your payment plans.
Instead, work with the delinquent owner! Reach out to them a few days before the payment plan payment is due. If they are late, giving them a friendly call or email to let them know that they have a payment due is always a good idea.
Option B: Leave the Planning to the Pros
Axela Technologies uses payment plans to help delinquent owners lift themselves up and out of delinquency and provide them with housing security. With a payment plan in place and serviced properly, the community association can secure its cash flow and can function optimally. If your community association has delinquencies, try and work it out with a payment plan. But if you find resistance, don’t jump straight to foreclosure–call the collection professionals at Axela: (305) – 392 – 0389.