Help with late fees.

Andrew

I did not check the math but we have one owner that has not paid in 4 years at $600 per year for a total of $2,400.00. Last letter I saw from our collection lawyer had the actual owed amount over $6,000.00 and climbing. And we are limited by a % per year also but the late charges and fees do add up.

Why not simply charge a $25.00 late fee? It's much simpler to keep up with. You just add the fee to the next payment due. If they don't pay the assessment plus late fee on time next month you charge another $25.00. Now they owe the outstanding balance, all due on the third month by your due date. If they are late again, a third time, you then submit the issue to your lawyer and slap a lien on their unit. Anyway, that's what we do. Gail

Andrew perhaps you should lighten up just a tad.

Your scenario that non-payment of a monthly fee of $100 for 4 months compounds to a total charge of more than $500,000 suggests to me your numbers and calculations are way off.

$360.00 X .01 is closer to $3.60 versus the $3060.00 you calculated.

Hopefully, someone else can run the numbers.

Andrew,

We have something similar in our governing documents.
Our CC&Rs specifies a 10% late charge and 12% interest.
Our Collection policy allows a $20 admin fee.

After much discussion on how to apply the late charges, the Board chose to seek legal advice. The advice received was to only charge the 10% on the amount of assessments due (do not add the previous charge to the total prior to calculating the 10%). Additionally, the Board decided to not charge any interest unless the issue goes to court. Although we can apply a $20 admin fee, we do not.

I've attached an example of accounting.

Andrew,

It would help immensely if you could post verbatim what your CC&R's have to say about imposing late fees.

One problem I see with your example is that you state the interest is applied to the assessment but it appears that in following months it applies to balance due. If one is delinquent, do the CC&R's authorize charging a new administrative fee each month for a continuing debt?

You wrote, "Our Association HOA states . . ." Normally, the authority to impose various fees for late payments would be stated in the CC&R's as that document is essentially the contract with the homeowners. It is not at all clear what the source of your the various charges and amounts is.

Tim gave you good advice to take this matter to an attorney. All an accountant can do is check your math. An attorney may advise you that the terms of all these fees and how they are to be applied are so vague or ambiguous as to be unenforceable. The fact that you have come here asking for help and stated that you have three different scenarios strongly suggests some problems with the legalities rather than with the math.

To: LarryB13 (Arizona)

Thank you for your response...but...

I think that the lawyer could be used to interpret the bylaws and then to help the association in the correct formulation of the calculations to implement correct late fees.

But is that lawyers interpretation of the bylaws correct? Maybe! Another lawyer could see it differently. There are court cases because lawyers see thing differently all the time. There are appeal courts where the lawyers still disagree.

Not to rag on the lawyers but one thing that they are able to do is include at the bottom of their invoice a percentage that will be added if their bill is not paid on their demanded due date.

I would venture to say that the Law Firm with their resources would take this elsewhere to arrive at solution that could be presented to their client. Also, if they are well versed (ie. they are a firm dedicated to providing services to HOAs' and Associations) that they will have built upon a knowledge base where examples of almost every fine problem has been researched and solved.

There are accounting or management firms that do this every day for HOAs' and Condominium associations all over America. Starting with the chicken or the egg...did they go to an attorney first and what then did that attorney do? Did their client association get sued by a member because that member disputed the overall imposition of late charges? I am sure this also happens.

I want to get this right the first time. Even though I believe that I may be correct, no doubt there may be some who will see it differently.

What I loath to hear is "Why not just charge $25.00 for each late payment and make it easy on yourself". If that is the advice from a lawyer I will look elsewhere. If the second month is also late and the tardy payer does not pay the first $25.00 or make good on the first payment or both then it becomes payment 1 + $25.00 + payment 2 + $25.00. Sure this is easy but requires a vote of the association members to implement (in our case) and if voted in the affirmative means that that association would be dropping money off the table where it could instead be used for improvements, maintenance..etc. I would lobby and seek proxy votes to see that this never happens.

I want to eat the whole veggie sandwich and not just lick the mustard packet.

So... Here is the wording for "Default in Payment of Assessments" from our bylaws.

"In the event of default by any unit owner in paying any assessments to the Association, including assessed common expenses and any other charge imposed or levied by the Association pursuant to the provisions of the Declaration, these Bylaws or the Oregon Condominium Act, such unit owner shall be obligated to pay interest at the rate of 12 percent per annum on such assessment from the due date thereof, or at such greater rate as may be established by the board of directors from time to time, not to exceed the maximum lawful rate, if any. In addition, the defaulting unit owner shall pay a late charge for any assessment not paid within 10 days of its due date in the amount of five percent of the delinquent payment, or such other reasonable late charge or administrative fee, or both, as may be established by the board of directors from time to time by resolution that is delivered to each unit, mailed to the mailing address of each unit or mailed to the mailing address designated by the unit owner in writing, together with all expenses incurred by the Association in collecting such unpaid assessments, including attorneys' fees (whether or not suit is instituted, and at trial or any appeal or petition for review therefrom). If the assessment is not paid within 30 days of its due date, the board of directors may declare any remaining installments of assessments for the balance of the fiscal year immediately due and payable and my terminate the right to receive utility services paid for out of assessments or the right of access to and use of recreational and service facilities of the Condominium until assessments have been brought current. The board of directors shall have the right and duty to recover for the Association such assessments, together with such charges, interest and expenses of the proceeding, including attorneys' fees, by an action brought against such unit owner or by foreclosure of the lien upon the unit granted by the Oregon Condominium Act. The board of directors shall notify the holder of any first Mortgage upon a unit of any default not cured within 60 days of the date of default."

Except for "not to exceed the maximum lawful rate" and the Oregon Condominium Act (from which our bylaws are a byproduct) I tend to believe that my (except for an addition error)
example procedure is correct.

To: ValK2 (Tennessee)

Thank you for your response.

I too suspected that the interpretation of a comma and a decimal point was the result of the differing county customs not for just number interpretations but also for date conversions.

Andrew

JohnC46

Thank you for your response.

So at 12% and from 2007 when the association was formed and which the board has never changed we should be fine.

Andrew

I use Excel for a database more than crunching numbers, but doesn’t it have formulas where you can plug in the numbers and let it figure out stuff like this? That might be the easiest way to check your math and if you put it in a spreadsheet, you can see what the numbers would look like over a year and you’ll know exactly what the homeowners would have to pay.

As for your comment to GailG3, you were just as rude to her as you felt JonD1 was to you. You’re the one who came to a website asking about math – why didn’t you just save yourself some time and trouble by going to your association accountant or a high school math teacher?

You may think having a simple late fee is too easy, but our association also uses one (ours is $30) and it’s effective. I understand you don’t want to leave money on the table by not charging the right amount of interest, but if people aren’t paying assessments, you’re already losing money, so it doesn’t matter how the late fee is charged because they probably won’t pay that either.

There’s nothing wrong with proposing a late fee to the homeowners to vote on – unlike you, they may think it’s easier to set a fee that the board could choose to increase as necessary. Maybe you should put the question to them and see what happens.

To: JohnC46 or SheliaH

Thank you for your response.

The problem I posted was not so that someone would check my math but instead to look at the procedure. If I did not make that clear then I understand why your post is also not to the point.

Andrew