Real Estate & Property Law

Late Fees - Collection Costs - How Much Is Too Much?

In these days of tough economic times, every dollar matters. Thus, owners who get behind on their assessment payments often get very unpleasant surprises. The costs of collecting delinquent homeowner assessments is high. So is the liability if a mistake is made. One technical mistake can unravel an HOA or Condo Association collection matter and require a "do over" at the association's expense. The processes are statute driven and paper intensive and there is a charge made for every step of the way.

Some owners shove the HOA or Condo assessments to the bottom of the hopeless heap of unpaid bills, figuring the late fees are not that big of a deal and they will catch up later. Others figure, like their mortgage, that if they let the property go to foreclosure they will walk away without further obligation once the foreclosure occurs and so they just stop paying. Because of the difficult financial plight of many HOAs and Condo Associations caused by the high number of defaults on property in California, many Associations are tightening up in their collections processes and moving things along more quickly than ever before. And sometimes that means that the intense collection costs attach earlier than they used to.

I received an email from a person upset about collection costs. See what he had to say:

"My son?s HOA collection agency added $225 to the HOA dues balance of $500 for a notice of intent to lien, plus a management cost. This is on top of late fees, interest and other costs. He missed one monthly assessment payment. ... My question: Is there a standard for reasonable collection costs? The quoted amounts seem excessive and redundant. He clearly made a mistake. We want to remedy this matter but want to be treated squarely (fair and reasonable). We have a meet and confer meeting coming up. Any suggestions or advice on a settlement amount? Also I presume the HOA board has the authority to resolve the balance owed to it plus whatever the collection agency purports that it is owed, right? Thanks in advance for any help."

All I can say is that I am not surprised, nor do I have any comment as to whether these fees are right or wrong, justified or not. I have been apprised in other situations of similar charges ($225 for a notice of intent to lien). If there is a management company involved there is often a charge made by management for the work in sending the account information to the collections agent. I have seen fees for this around $50 or $75. And II have seen fees for the letter stating the intent to lien around $150 to $200. The next step is the lien (30 days later, usually), and the charges for preparation and recordation of the lien are generally between $150 to $300, sometimes more. The costs get exponentially worse as the process continues. The association has to gather the correct information for the lien through obtaining a property profile and has to procure a trustee sale guarantee at some point - and the cost alone of a guarantee was around $400-$500 10 years ago (when I was working in a law firm that did collections). Thus, at the stage where a Notice of Default is recorded, the costs can jump as much as $1000 or more. Yes ... very expensive, but in line with what HOAs and Condo Associations commonly charge.

If this situation arises for you, it is best to clear up the debt and go forward at the earliest opportunity. Boards can forgive collection costs and may be so inclined when someone makes a mistake and misses just one payment, or runs into trouble and wants to catch up. However, it is important to understand that once "hard costs" are incurred - such as fees that have to be paid to management or collection agents for the work they have done on a collection matter, boards are reluctant to forgive these. When they absorb these costs, it means that all other owners suffer to a degree the failure of the individual owner. It is easier to get some leniency on the "soft costs" such as late fees and interest.

Full post as published by California Condo & HOA Law on February 12, 2010 (boomark / email).