In most cases, planned communities such as condo complexes, town homes, exclusive neighborhoods or suburban housing developments have homeowners associations – a group that handles the maintenance and operation of the community’s amenities and common property. These homeowners associations, usually referred to as HOAs, also require regular fees to help cover costs. Here’s an explanation of why you shouldn’t neglect to pay your HOA dues…
Help Maintain Your Neighborhood’s Valuable Features
These HOA costs, usually called “dues,” are typically used to cover fees associated with the operation or upkeep of things like neighborhood signs, roads, community pools, tennis courts or other features. Most HOAs also take a portion of the dues to put into savings, in the event of an emergency, such as damage from a natural disaster or unplanned repairs. Without HOA dues, many housing communities wouldn’t be able to operate or even exist at all. That’s one reason why it’s so important for HOAs to have these monetary funds, and why it’s in your best interest to pay your dues regularly.
Non-payment Affects Your Neighbors
When homeowners fail to pay their HOA dues, not only can their community suffer, their fellow neighbors are affected as well. Condominium complexes and other multi-family housing establishments rely on owners to pay monthly or yearly dues in order to pay for exterior maintenance costs, as well as all the other things already mentioned. When one or two homeowners neglects to pay, it might not seem like a big deal, but if enough people get behind on their HOA fees, these communities are forced to raise their dues to help offset the loss from the non-payers Sounds unfair, right? Well, it is – but unfortunately, communities have to find some way to combat an empty bank account, and sadly, owners who pay on time are usually the ones that have to “pick up the slack.”
Non-payment Affects Your Credit
Most HOAs have the legal right to ding your credit, or even put a lien against your property if you fail to pay your dues. Think of it as you would any other bill. Your electric company, cable provider or landlord (if you’re renting) all have the ability to report you to the major credit bureaus. Why would an HOA be any different?
Non-payment After Foreclosure Can Still Harm Your Finances
When you buy a home with an HOA, you will be given a purchase contract, along with a contract that specifically deals with the neighborhood’s HOA. Do not assume that the HOA dues disappear when your home is foreclosed. The by-laws in just about every homeowners association agreement includes a personal lien for unpaid association dues or any special assessments deemed necessary by the HOA board members. Note that the key term here is PERSONAL lien. This means that even though your property is in the bank’s possession, YOU could still be responsible for your unpaid dues. If your home has been foreclosed, and the HOA informs you that you are still responsible for unpaid dues, it would be in your best interest to pay up, or at least try to work out a reasonable payment plan. If the issue has already gone to collections, you may have little choice but to come up with the dough. If you don’t, they may garnish your wages, seize your tax refunds or even demand payment from your children (heirs) or anyone who has a legal interest in the property.
While all of this may sound intimidating, don’t let it scare you away from communities with HOAs. For the most part, HOAs are simply businesses that are looking out for the best interest of the property. After all, a neighborhood in disrepair will adversely affect home values, and, as such, these homes will not fare well on the market.
But What if I Suspect My HOA of Mishandling Funds?
If you suspect illegal activity in your HOA, you may be tempted to stop paying your dues – but don’t! This can only make you financially vulnerable in the long run. Instead, keep your payments coming as usual, but do a little research on your HOA and their budget. Most HOAs have board meetings that the neighborhood homeowners are allowed to attend. If you’re dealing with a shady HOA, you may have to make several phone calls or do a little digging to find out when and where these meetings take place, but it will be worth your while to do so. If you can, attend the meetings and take notes. Pay attention to discussions of budget and, before leaving, request a copy of the HOA’s budget from a board member. (A lot of decent HOAs will publish this info quarterly in a neighborhood flyer, or post it on their website). If the board does not oblige your request, consider that another red flag. If your suspicion is strong enough, you may want to consider petitioning a few of your fellow neighbors to consult a lawyer. Whatever you do, don’t stop paying your dues. Even if the HOA is found guilty of misappropriation of funds, they may be able to hurt your credit before a legal proceeding can take place. And yes, you may be able to rectify this later, but it will just cause you headaches in the meantime.