Special assessment refund and delinquent dues

LynnM12 (New York)
Posts: 1

Posted:

Recently our HOA was approached to purchase an adjacent piece of property, which would benefit all members so a Special Assessment was imposed to purchase the land. Unfortunately the deal fell through and we will be refunding members money. The problem is that there are two members who paid the special assessment but are currently behind in their Annual Dues and owe the association money, so can we subtract the amount they owe they association from their refund amount or do we have to refund the full special assessment amount and attempt to collect the back dues on our own?

MelissaP1 (Alabama)
Posts: 13,836

Posted:

The money they sent in was ear-marked as a special assessment. If everyone else whose money was used this way gets their money back, they do too. As for the other money owed, need to follow through with your collection policy. Our policy was 6 month's behind we lien. 1 year behind we consider foreclosure. It's best to have a solid policy as otherwise it can appear as "selective enforcement".

Former HOA President

RichardP13 (California)
Posts: 3,868

Posted:

Lynne

Yes, the money earmarked for the special assessment can be redirected to pay their delinquent account.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

That could be considered fraud Richard. If I pay in money as part of a special assessment, then I expect it to be used as part of that special assessment. Now if that fell through, then I expect my money back just like everyone else. I did NOT agree for the HOA to use my special assessment money to apply it to my other debts. Unless I explicitly say "Use that money to pay my debt" if it falls through, then the HOA got that money under fraudulent circumstances.

Former HOA President

RichardP13 (California)
Posts: 3,868

Posted:

Quote:

Posted By MelissaP1 on 02/01/2018 8:57 PM
That could be considered fraud Richard. If I pay in money as part of a special assessment, then I expect it to be used as part of that special assessment. Now if that fell through, then I expect my money back just like everyone else. I did NOT agree for the HOA to use my special assessment money to apply it to my other debts. Unless I explicitly say "Use that money to pay my debt" if it falls through, then the HOA got that money under fraudulent circumstances.

Do you know for a fact that it is fraud? Or you just don't like it.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Switch and bait another term? Special assessments are based on a specific project. To apply money simply because you have it to a debt does not justify it. Personal preference nothing to do with my opinion. Applying money to back dues is.

Former HOA President

BenA2 (Texas)
Posts: 1,273

Posted:

Quote:

Posted By LynnM12 on 02/01/2018 4:45 PM
Recently our HOA was approached to purchase an adjacent piece of property, which would benefit all members so a Special Assessment was imposed to purchase the land. Unfortunately the deal fell through and we will be refunding members money. The problem is that there are two members who paid the special assessment but are currently behind in their Annual Dues and owe the association money, so can we subtract the amount they owe they association from their refund amount or do we have to refund the full special assessment amount and attempt to collect the back dues on our own?

To me, it makes no sense to refund money to someone who owes you money. Even the government would not normally do that. If you overpay income tax during the year, you are entitled to a refund when you file your taxes, but if you owe the government money for something else, like an old student loan, they are going to subtract it from your refund.

We've all heard that possession is 9/10 of the law. That does not mean that you are entitled to anything in your possession but it does mean that the person in possession of the property or money has the advantage. If the members believe they are entitled to a refund, they have to sue you to get it. What are the chances they can convince a judge that you should pay them $100 when they owe you $150?

I would talk to an attorney before doing this because it is possible that there is a law that prohibits it. Every state is different.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Since it's possible that homes have sold, it can be difficult finding the individual to refund the money to. Therefore, if it were me, I would propose that the special assessment be credited to the regular assessment ledger of each lot.

No refunds are needed. The owners gain the affect of a refund by not having to pay assessments for awhile.

FredS7 (Arizona)
Posts: 927

Posted:

Quote:

Posted By RichardP13 on 02/01/2018 8:24 PM
Lynne

Yes, the money earmarked for the special assessment can be redirected to pay their delinquent account.

Makes sense to me. I suppose you could check with your lawyer, depending on how much money is at issue.

SheliaH (Indiana)
Posts: 6,964

Posted:

If they paid the special assessment, I find it odd that they didn't have the money to pay down the delinquent assessments. I would apply the money to the delinquency.

Regarding the refunds itself, I agree with Tim - you might not need the money for buying the land, but I'm sure there are other expenses it could be used for. Why not credit the homeowners so they won't have to pay assessments for a few months - I think that might be more popular than a check, which would be spent quickly and you'd still have to deal with regular assessments.

This would be a good time to look at your collection policy to consider adding something regarding special assessments and delinquencies. We used to say a special assessment would be due on top of your regular assessments and although we've never had a special assessment, I would think that money would be applied to the current delinquency.

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

AllumW (Florida)
Posts: 68

Posted:

This article may help. Seems like the bottom line is check your state laws regarding special assessments.

https://www.hoaleader.com/public/Refunding-HOA-Special-Assessment-Wise-Who-Gets-It.cfm

MelissaP1 (Alabama)
Posts: 13,836

Posted:

I totally 100% agree with the article AllumW posted. Don't believe the money should be refunded. However, do believe it should be disclosed fully where the money is now going to be used for. Which is either to fund the reserves or another possible project.

As for applying the money to back dues owed, would not do it. A few reasons why. That money was collected in the guise of being used for a specific purpose and agreed upon by the HOA. Whoever contributed did so because they AGREED to the use of the money. They did NOT agree for it to be applied to the money they owed. Now doesn't mean the HOA can not ask if this is okay to apply. It's just would not do it without the owner awareness/agreement.

Now, what if your dealing with a difficult owner who is not paying their dues out of "protest". They agree to using the money for that additional land purchase because they may seen profit signs. (I can't imagine agreeing to a special assessment to purchasing land in New York without some kind of marketable promise/benefit.) So now the HOA applies the money to their back dues? That doesn't really benefit anyone. It will upset the owner and the HOA can't pursue avenues of collection. They will just continue to be non-paying members for longer.

Former HOA President

BillH10 (Texas)
Posts: 1,217

Posted:

Interesting conversation. As yet another example of how laws and codes vary across the country, I have quoted below from the Texas Property Code regarding application of payments received to account balances.

In the OP's scenario, we would have applied the SA payment to the delinquent homeowner's balance upon receipt, any funds left over would flow to the Current Assessment which would mean a partial payment would be credited to the Special Assessment. This is actually to the benefit of the homeowner as it would stop the collection process on the previously delinquent account balances immediately. The collections clock would have to be restarted when the new unpaid balance, presumably a portion of the Special Assessment, became past due.

Allocation of payments

An HOA must apply payments it receives from a homeowner to the homeowner’s balance in the following order:
(1) Delinquent assessments.
(2) Current assessment.
(3) Attorney’s fees or third party collection costs incurred by the HOA in connection with assessments or any other charge that could provide the basis for foreclosure.
(4) Other attorney’s fees incurred by the association.
(5) Fines assessed by the association.
(6) Other amounts owed to the association.

This rule is significant because HOAs cannot foreclose for delinquent fines or attorney fees incurred to assess or collect those fines. Before this change was enacted, HOAs could apply a homeowner’s payment to first to fines (even to disputed fines) or attorney fees connected with those fines leaving unpaid the assessments and attorney fees that could provide a basis for foreclosure.
However, the HOA is not required to follow the priority rule when property owners are in default under a payment plan.

RichardP13 (California)
Posts: 3,868

Posted:

Quote:

Posted By BillH10 on 02/02/2018 4:25 PM
Interesting conversation. As yet another example of how laws and codes vary across the country, I have quoted below from the Texas Property Code regarding application of payments received to account balances.

In the OP's scenario, we would have applied the SA payment to the delinquent homeowner's balance upon receipt, any funds left over would flow to the Current Assessment which would mean a partial payment would be credited to the Special Assessment. This is actually to the benefit of the homeowner as it would stop the collection process on the previously delinquent account balances immediately. The collections clock would have to be restarted when the new unpaid balance, presumably a portion of the Special Assessment, became past due.

Allocation of payments

An HOA must apply payments it receives from a homeowner to the homeowner’s balance in the following order:
(1) Delinquent assessments.
(2) Current assessment.
(3) Attorney’s fees or third party collection costs incurred by the HOA in connection with assessments or any other charge that could provide the basis for foreclosure.
(4) Other attorney’s fees incurred by the association.
(5) Fines assessed by the association.
(6) Other amounts owed to the association.

This rule is significant because HOAs cannot foreclose for delinquent fines or attorney fees incurred to assess or collect those fines. Before this change was enacted, HOAs could apply a homeowner’s payment to first to fines (even to disputed fines) or attorney fees connected with those fines leaving unpaid the assessments and attorney fees that could provide a basis for foreclosure.
However, the HOA is not required to follow the priority rule when property owners are in default under a payment plan.

Melissa is not going to like this.

NigelB (Texas)
Posts: 254

Posted:

Quote:

Posted By BillH10 on 02/02/2018 4:25 PM
Interesting conversation. As yet another example of how laws and codes vary across the country, I have quoted below from the Texas Property Code regarding application of payments received to account balances.

In the OP's scenario, we would have applied the SA payment to the delinquent homeowner's balance upon receipt, any funds left over would flow to the Current Assessment which would mean a partial payment would be credited to the Special Assessment. This is actually to the benefit of the homeowner as it would stop the collection process on the previously delinquent account balances immediately. The collections clock would have to be restarted when the new unpaid balance, presumably a portion of the Special Assessment, became past due.

Allocation of payments

An HOA must apply payments it receives from a homeowner to the homeowner’s balance in the following order:
(1) Delinquent assessments.
(2) Current assessment.
(3) Attorney’s fees or third party collection costs incurred by the HOA in connection with assessments or any other charge that could provide the basis for foreclosure.
(4) Other attorney’s fees incurred by the association.
(5) Fines assessed by the association.
(6) Other amounts owed to the association.

This rule is significant because HOAs cannot foreclose for delinquent fines or attorney fees incurred to assess or collect those fines. Before this change was enacted, HOAs could apply a homeowner’s payment to first to fines (even to disputed fines) or attorney fees connected with those fines leaving unpaid the assessments and attorney fees that could provide a basis for foreclosure.
However, the HOA is not required to follow the priority rule when property owners are in default under a payment plan.

I'd argue that in Texas, the special assessment must be returned or the homeowner must agree to have the special assessment applied to the delinquent assessment, I don't think that HOA can unilaterally apply it to delinquent accounts.

Section 209 of the Texas Property Code has the following preamble

Sec. 209.0063. PRIORITY OF PAYMENTS. (a) Except as provided by Subsection (b), a payment received by a property owners' association from the owner shall be applied to the owner's debt in the following order of priority:

If we read it literally, the special assessment in a delinquent account would have to be first applied to delinquent assessments, attorney fee etc in that order which negates the purpose of the special assessment.

I'd say that the special assessment can only be used for the purpose it was intended, and the law is meant to cover payments to the account made by the homeowner in settling the delinquent amount. The intent of the legislature was to prevent HOA's from foreclosing on any delinquency other than assessments, hence the mandated order of payoff.

But it would be better for the OP to consult with the HOA attorney.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Great lessons in these posts:

1. Laws vary state to state.

2. Even knowledgeable people in a given state interpret the same state law differently.

Keep these facts in mind especially those who shop for an answer they want.

BillH10 (Texas)
Posts: 1,217

Posted:

Nigel, I don't agree for the following reasons:

1. The property code explicitly states the order of application of payments received. It makes no mention of the priority or type of assessment which created the account balance. If there were a delinquent balance from a previous special assessment, I would apply a payment received for a regular assessment to the account balance--straight to the amount due the association with the payment applied to the most delinquent then in descending assessment date order until any current balance due was reached then onto the next item in the application of payments received list.

2. The OP's question concerned refunding the special assessment, so the payment was for something which did not take place.

3. It would be fiscally irresponsible of the Association to give a refund to an owner who has a delinquent account balance. Among other reasons, not applying the payment to the delinquent balance would require the collections process proceed, at probable additional expense to the association until the costs of collection could be recovered.

I don't understand your logic in quoting the preamble to the order of application of payments to support your conclusion the SA can only be used for the SA. To me, the language you quoted reinforces the order of application of payment language which follows.

As an aside, our accounting software would have rendered the invoice for the special assessment showing the amount of the special assessment and the total account balance due. It would not show just the special assessment amount in the total payment due field.

Finally, I believe the property code provides explicit and unambiguous direction regarding the order of application of funds received to the account balance.

BillH10 (Texas)
Posts: 1,217

Posted:

Nigel, I don't agree for the following reasons:

1. The property code explicitly states the order of application of payments received. It makes no mention of the priority or type of assessment which created the account balance. If there were a delinquent balance from a previous special assessment, I would apply a payment received for a regular assessment to the account balance--straight to the amount due the association with the payment applied to the most delinquent then in descending order until any current balance due then onto the next item in the priority.

2. The OP's question concerned refunding the special assessment, so the payment was for something which did not take place.

3. It would be fiscally irresponsible of the Association to give a refund to an owner who has a delinquent account balance. Among other reasons, not applying the payment to the delinquent balance

I don't understand your logic in quoting the preamble to the order of application of payments to support your conclusion the SA can only be used for the SA. To me, the language you quoted reinforces the order of application of payment language which follows.

As an aside, our accounting software would have rendered the invoice for the special assessment showing the amount of the special assessment and the total account balance due. I believe the property code provides explicit and unambiguous direction regarding the order of application of funds received.

BenA2 (Texas)
Posts: 1,273

Posted:

Quote:

Posted By BillH10 on 02/03/2018 9:32 AM

Finally, I believe the property code provides explicit and unambiguous direction regarding the order of application of funds received to the account balance.

That statement says it all. I agree.

NigelB (Texas)
Posts: 254

Posted:

Quote:

Posted By BenA2 on 02/03/2018 5:14 PM

Posted By BillH10 on 02/03/2018 9:32 AM

Finally, I believe the property code provides explicit and unambiguous direction regarding the order of application of funds received to the account balance.

That statement says it all. I agree.

In which case, the payment for the special assessment would have had to been applied to the delinquent account immediately on receipt, in the order specified in section 209. Thereby making the special assessment balance insufficient.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Lets keep in mind that the OP is from NY

JanetB2 (Colorado)
Posts: 4,219

Posted:

Quote:

Posted By LynnM12 on 02/01/2018 4:45 PM
Recently our HOA was approached to purchase an adjacent piece of property, which would benefit all members so a Special Assessment was imposed to purchase the land. Unfortunately the deal fell through and we will be refunding members money. The problem is that there are two members who paid the special assessment but are currently behind in their Annual Dues and owe the association money, so can we subtract the amount they owe they association from their refund amount or do we have to refund the full special assessment amount and attempt to collect the back dues on our own?

Hi Lynn ... Welcome to the Forum!!!

My first question would be are you Condo, Single Family Homes, Townhomes???

If you are Condo your State Statute tends to note this should potentially be covered in your bylaws per:

§ 339-v. Contents of by-laws. 1. The by-laws shall provide for at least the following

(b) Provisions governing the payment, collection and disbursement of funds, including reserves, to provide for major and minor maintenance, repairs, additions, improvements, replacements, working capital, bad debts and unpaid common expenses, depreciation, obsolescence and similar purposes.

Here is a link to your State Statutes: https://www.nysenate.gov/legislation/laws/RPP

It looks like Article 9-A is Subdivided Lands and 9-B is for Condominiums.

If all else fails the best policy is to ask your HOA attorney. A quick question like this should be a minimal charge.

KellyM3 (North Carolina)
Posts: 2,239

Posted:

Quote:

Posted By MelissaP1 on 02/01/2018 8:11 PM
The money they sent in was ear-marked as a special assessment. If everyone else whose money was used this way gets their money back, they do too. As for the other money owed, need to follow through with your collection policy. Our policy was 6 month's behind we lien. 1 year behind we consider foreclosure. It's best to have a solid policy as otherwise it can appear as "selective enforcement".

Good advice.