Keep Them Tight

By: Roy Helsing

All associations are required to have a delinquency policy – a procedure to undergo should a homeowner become delinquent. It is a requirement of the California Civil Code (Section 1365(d)) to have such a policy and to notify the homeowners of the policy annually. The purpose of this requirement is pretty evident; to make sure all homeowners are aware of what will happen should they not pay their assessments on time. However, such a policy also insures that delinquent homeowners are handled the same – that there is no favoritism or other wrongdoing taking place.

The typical delinquency policy is that assessments are due on the first of the month, and late after the 15th of the month. A late fee of $10 or 10%, whichever is greater, is applied after the 15th and the homeowner notified. If not paid by the 30th, 1% interest is added and another notice sent. If not paid by the 45th day, a collection action is started usually through a lien process – but other remedies are available (small claims court, or superior court among the possibilities).

From time to time we see Boards that want to loosen this standard, a desire that appears to me to be misdirected. The reason is usually something like requiring payment by the fifteenth is very onerous on people and not reasonable. I have trouble understanding that logic. Most people have another obligation due on their home – a mortgage. That mortgage is also due on the first but is typically late on the 10th. It is interesting that most homeowners consider that to be reasonable, and typically pay on the first (or close enough to it not to get late fees charged). However, many homeowners pay their assessments on the 10th or 12th and seem to view the 15th as the due date – and not the late date!

Usually those who want a later due date also want later dates for all other actions, including the date the account goes to collections. In virtually every case, it is to accommodate homeowners in order to make it easier on them – to give them more time to pay a just debt. But what does the association gain? Slower cash flows, a greater delinquency rate, and a decreased probability of timely collection of dead-beat owners. The net result of all of that is typically a problem with current homeowners refinancing or selling because of the delinquency rate – and a decrease in property values.

The Board’s duty is to keep the association solvent and to protect property values. A looser delinquency policy certainly gives relief to homeowners that may need it, but unfortunately it puts the rest of the membership and their property values at risk. While Boards may have the legal ability to have a less stringent delinquency policy, the Board needs to remain focused on their primary duty – to protect property values. Tight and reasonable policies like those lined out in the Civil Code were designed to do just that. Resist the urge to be accommodating on this issue. Consider the homeowner’s duty to pay, and pay on time, the same as the bank views the duty to pay the mortgage payment and pay it on time. Doing so, and then following that delinquency policy through to collections, will assure you are doing your best to protect your association.

Articles are for advertising and general information by The Helsing Group, Inc. They are not intended to provide legal advice, but rather reflect our opinions as Community Association managers and Consultants. Readers should not act on issues raised in our newsletters or websites without consulting legal counsel.

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