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Subject: Charging HOA Late Fees and Interest
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BeverlyW3
(Virginia)

Posts:7


10/02/2019 7:15 AM  
In our Virginia HOA, the governing documents states "...the Association has the right to also charge the Owner with the Association's collection costs, including reasonable attorneys' fees, whether or not suit is brought. The Association may also establish late fees for delinquent payment of assessments."

The Board is working on determining the late fee and interest. The governing documents do not state a specific amount in late fees, just that they may "establish" late fees. Virginia statute says "Except to the extent that the declaration or any rules or regulations promulgated pursuant thereto provides otherwise, the board may impose a late fee for, not to exceed the penalty provided in § 58.1-3915." And that Virginia statute says 5%.

First question is this: Because the HOA governing documents does not specify a set amount to charge for late fee, are they limited to charging the 5% as outlined in Virginia statute. Or because the docs say they can "establish" late fees, can they charge a different amount like $25 for each month they are delinquent? 5% would only be $6 which certainly doesn't seem to be a motivating factor to pay on time.

Second question: Can the late fee be charged for each monthly amount they are behind?

Third question: Is there a standard interest that is generally charged? And is the interest just based on the actual assessment (not counting late fees)?
SheliaH
(Indiana)

Posts:2701


10/02/2019 9:47 AM  
For a more precise answer, you probably need to consult the association attorney, as most of us aren't attorneys and what may be true in my state and governing documents may not be the same in yours.

In my community, we charge late fees for every month the owner is behind, and after 45 days, the account is sent to our attorney for collection. The homeowner also has to pay a collection fee (I think it's currently $50) to cover the fee our property manager changes to send out the letters and monitor the accounts. There are also fees for returned checks (paper or electronic) - we usually charge whatever the bank would charge us.

As for the late fee itself, it doesn't look to me like the statute states where this 5% would come from. For example, if your monthly fee is $150, does the statue allow you to charge $7.50 (which isn't very much)? Unless someone from Virginia can chime in on how this works, it may be better to start with charging a late fee, but once it goes to the attorney, take on 5% interest for every month the balance remains unpaid. For example, after 3 months of nonpayment, you might have $450 in dues and $75 in late fees ($25 for every month). Five percent of that ($525) would be $26.25, and now the homeowner is looking at owing the association $551.26, and you take on 5% on the balance every month thereafter. Have your attorney explain the statute and perhaps give you some scenerios where this could work for or against the association, and then make a decision. Be sure you notify the homeowners every year on late fees and interest and how they're computed, so they can't squawk they didn't know. We send outs a copy of the collection policy every year.

As a former Board treasurer, I looked at late fees as an incentive to pay assessments in full and on time every month, not as a money-maker for the association. That's why we found it easier to go with a late fee, collection costs after 45 days - and then we accelerated the assessments in that the rest of the year's assessments would immediately become due. All that, plus the homeowner is responsible for attorney fees and other legal expenses incurred in collecting the debt (such as filing a lien on the property). This wey we didn't have to bother with computing interest, as the ensuing balance was enough to make the homeowner take notice.

All that said, when a homeowner went chapter 13, the court usually made him or her pay interest on whatever amount it ordered the homeowner to repay us - we'd happily accept it, and although repayment often takes a long, long, LONG time, we'd get all the money back.
MarkW18
(Florida)

Posts:121


10/02/2019 9:55 AM  
Late fees are for the monthly assessment they are late on, not the overall amount on a monthly basis. The fee should be in your CCRs, if not, then check your state statues.

Interest is charged on the outstanding balance on a monthly basis and a normal amount is 12%.

Since you aren't sure about the process, I would check, not with the association attorney, but someone who doesn't bookkeeping for HOA's in your state to see how payments are processed.
SteveM9
(Massachusetts)

Posts:3362


10/02/2019 12:46 PM  
i agree the low amount doesnt deter....

so we charge the late fee at state maximum, say $5. But we have a lawyer do the paperwork, so add another $200 fee to pay the lawyer. 100% no late payments anymore.
JohnC46
(South Carolina)

Posts:8730


10/02/2019 1:34 PM  
Bev

I believe one can charge a late fee up to the amount of interest allowed under state usury laws which is at least 18% and even higher. Plus one can charge additional costs such as mailing, time to prepare the statement, lawyer fees, etc. We had a person owing us 3 years of due, $1,800. In the end it had gone to over $5,000 what with late fees, lawyers, liens filed, etc.
MarkW18
(Florida)

Posts:121


10/02/2019 1:47 PM  
I take back whatever I posted.

Charge whatever you think you can get away with.
JohnC46
(South Carolina)

Posts:8730


10/02/2019 2:11 PM  
Google:

As in most other states, Virginia law limits the amount of interest a creditor may charge. The state's limit is 8 percent unless a contract specifies a greater amount, and most contracts with lenders do in fact specify a greater interest rate.

So if your docs say higher than 8%, you can charge the higher amount.
GenoS
(Florida)

Posts:3234


10/02/2019 2:16 PM  
If you're going to add language to your documents providing for late fees you should also consider language that allows the Board to waive them. Sometimes that's a desirable thing to do.
MelissaP1
(Alabama)

Posts:8601


10/02/2019 3:31 PM  
Here is my rule of thumb on late charges. Follow what a bank or credit card company sets. Basically I would charge the same rate as a bad check fee. It is essentially like writing a bad check. So whatever the going rate for a bad/returned check is what would charge. It's most likely posted at any cash register when go shopping.

I'd also apply similar strategy with interest. Follow what credit card rules are. It's usually documented in their "fine print". Plus our CC&R's dictated what the interest was. Which varied and based on prime rate I think.

Former HOA President
MarkW18
(Florida)

Posts:121


10/02/2019 4:29 PM  
I guess throw out state statues and governing docs. I love it!
MelissaP1
(Alabama)

Posts:8601


10/02/2019 4:45 PM  
What are you talking about? Bank and credit card companies have to be compliant to State and Federal Laws. So they set their policies closely to the LEGAL limits they can. They are pretty up to date and lawyered up. Most HOA's documents are NOT up to date nor necessarily accurate.

So I would use Bank and Credit companies policies as a good reference tool to verify the HOA documents are falling in line with the laws.


Former HOA President
NpS
(Pennsylvania)

Posts:3758


10/02/2019 6:55 PM  
Posted By MelissaP1 on 10/02/2019 3:31 PM
Here is my rule of thumb on late charges. Follow what a bank or credit card company sets. Basically I would charge the same rate as a bad check fee. It is essentially like writing a bad check. So whatever the going rate for a bad/returned check is what would charge. It's most likely posted at any cash register when go shopping.

I'd also apply similar strategy with interest. Follow what credit card rules are. It's usually documented in their "fine print". Plus our CC&R's dictated what the interest was. Which varied and based on prime rate I think.


Wrong. In 1978, the U.S. Supreme Court unanimously decided in Marquette National Bank v. First of Omaha Corp. that credit card companies could export interest rates from where they were located to other states. HOAs cannot import interest rates from another state.

Sikubali jukumu. Read all posts at your own risk.
MarkW18
(Florida)

Posts:121


10/02/2019 7:47 PM  
Posted By MelissaP1 on 10/02/2019 3:31 PM
Here is my rule of thumb on late charges. Follow what a bank or credit card company sets. Basically I would charge the same rate as a bad check fee. It is essentially like writing a bad check. So whatever the going rate for a bad/returned check is what would charge. It's most likely posted at any cash register when go shopping.

I'd also apply similar strategy with interest. Follow what credit card rules are. It's usually documented in their "fine print". Plus our CC&R's dictated what the interest was. Which varied and based on prime rate I think.



Based on based posts, you are not one that likes to do any research for the state of the poster. You probably shouldn't post to a topic you have no idea about in regards to state statues.

According to Virginia state code, an association may not charge more than 5% for a late fee but can charge less.
MelissaP1
(Alabama)

Posts:8601


10/02/2019 7:50 PM  
I did NOT post a thing about any number a state can charge. Simply stating that as a "Guide" to view what Banks/Credit companies comply to. It's NOT a perfect scale. Just a way to gauge if it's excessive or not enough. How hard is this to understand???

Former HOA President
MarkW18
(Florida)

Posts:121


10/02/2019 9:25 PM  
Posted By MelissaP1 on 10/02/2019 7:50 PM
I did NOT post a thing about any number a state can charge. Simply stating that as a "Guide" to view what Banks/Credit companies comply to. It's NOT a perfect scale. Just a way to gauge if it's excessive or not enough. How hard is this to understand???



The answer that should have been given, based on your vast experience, is follow the governing documents and/or state statues, not what the Bank of America does or doesn't do.
MelissaP1
(Alabama)

Posts:8601


10/03/2019 4:15 AM  
Going to dictate my answers and free advice now? If you think your HOA is overcharging or not charging enough, then looking at what OTHERS charge is usually a good GAUGE if your in the right ballbark. I am not responsible for looking at every single state or HOA document to provide someone an answer to every question they have. Can just give them a GAUGE if it seems out of place.

Former HOA President
MelissaP1
(Alabama)

Posts:8601


10/03/2019 4:59 AM  
Vast experience answer... Rarely anyone READS their documents until something happens to them. Still they may claim they never got them or read the wrong ones. So when doing one's RESEARCH on the subject it's good to have a GAUGE in place before going down a rabbit hole. My HOA charging $100 late fee and dues are only 50? Red Flag. Interest is 25 percent? Red Flag. Creating the rule for the HOA? How much is reasonable? Maybe the charge of a bad check and around interest a credit card company charges.

It's NOT an exact science. It's just a GAUGE in which direction you should go because HOA's documents are rarely up to date or comply to the most current laws on how much to charge.

Former HOA President
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