HOA's Authority to Collect Late Charges & Interest
The authority to collect late charges and interest need not be in the governing documents; it is granted by Civil Code § 5650(b). If an assessment is delinquent, associations may recover all of the following:
- A late charge not to exceed 10% of the delinquent assessment or $10.00, whichever is greater (unless the CC&Rs specify a smaller amount).
- Interest on delinquent assessments, reasonable fees and costs of collection, and reasonable attorney's fees, at an annual interest rate not to exceed 12%, commencing 30 days after the assessment becomes due, unless the CC&Rs specify a lower interest rate, in which case the lesser rate applies.
- Reasonable attorneys' fees and costs incurred in collecting the delinquent assessment.
One Late Charge Per Assessment. Associations cannot levy late charges month after month on the same unpaid assessment. A late charge is a one-time penalty of 10% or $10 (whichever is greater) to encourage the timely payment of assessments. (Civ. Code § 5650) After that, the association can charge interest at 12% until the assessment is paid (unless the governing documents set a lesser amount). (Civ. Code § 5650)
When to Apply Late Charges. While some associations use the postmark to impose charges, this is a minority position and appears to be limited to associations and management companies that handle funds without utilizing lockbox services. Most HOAs and management companies use lockbox services and do not track the postmark--they impose late charges based on the date payment is received (as do credit card companies). Online banking has also become a factor. In online banking, a payment is counted when received by the bank, not when transmitted by the owner. Accordingly, if payment is due on the first of the month, the assessment is delinquent 15 days after it becomes due, i.e., the 16th of the month, at which point late charges can be levied.
Reversal of Late Fee. Some associations have a policy of waiving one late fee per year per account, provided the delinquent owner requests it. If an owner wants more than one late fee reversed, they are asked to write a letter to the board requesting the waiver. If there is good cause, the board may allow a second waiver.
Collecting Fees
Fees may include rent for storage units, golf course usage fees, transfer fees, clubhouse reservation fees, and other related expenses. Because fees are not assessments, associations have limitations in collecting those fees. An association's authority for nonjudicial foreclosure is limited to assessments and related collection costs. (Civ. Code § 5650(a)) This limitation does not apply to judicial foreclosures. Although Civil Code § 5600(b) prohibits associations from charging fees in excess of their costs, this restriction applies to associations, not to their managing agents. Management companies may profit from collecting delinquent assessments. As a result, management companies may charge more than their actual costs when generating pre-lien letters, lien letters, etc. (Brown v. PCM) A similar ruling was made about escrow fees. (Berryman v. Merit Management; Fowler v. M&C Mgmt)
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