Late fees on monthly dues illegal?

We have an owner that had his employment hours reduced from 40 to 31 hours. He claims that "an attorney" has advised and told him that if we charge him a late fee it is illegal at this time and that we should waive all late fees for him. We since have asked him to quote the law that can overturn our declaration document under delinquent accounts. Of course he just keeps threatening to sue if we do. Background on this owner – he has been late with his dues for years and when he gets 3 months late on either his dues and/or his late fees we threaten to send him to collections. He somehow gets the money to pay but then goes right back to being late. He always tries to get us to waive his late fees, unfortunately one time 3 years ago around Christmas we did. We told him it was a one time deal and if he got behind again the late fees would come back, of course we didn't. Since then we've taken a stand and will not waive any late fees for him. When we informed the owners the dues would be going up by $25 a month in 2010 he responded very badly. He accused some of us on the board of having personal agendas and threatened that he would go around to all owners and get some on the board impeached etc.. . . if we insisted on the new monthly fees. We deal with waiving late fees for owners on a case by case basis, but with his history of not paying when we had a plan in place, I don't think the board will be very bendable.

Has anyone else ran into this problem with an owner? And what would you do at this point?

Lois,
In a perfect world you govern by your documents, people are not perfect. Most documents allow or stipulate that because an action required to be taken was not enforced, that does not mean it can't be enforced in the future. It happens. If your board has put themselves in a bind, they should go back and reaffirm their commitment to the documents. I don't think they have much choice. Then, as HB says, wait for a letter from lawyer. But, understand this threat is nothing new or will it go away. Better someone sues the Board than the board has to sue, generally. Your antagonist appears to have no reason to threaten the board. Have you thought of some kind of a hearing before the Board to openly discuss with him these collection problems? Certainly that would be justification for a closed meeting of the board and an invitation for this guy or any other, to attend. Make the offer to him, best foot forward you know, discuss the problem and stick to your knowledge of your documents and look for compromise inside that arena, no violation of the covenants. The board can not set this stage as a platform to be the heavy and allow dictatorship to take center stage, but, the board needs to take a stand. It always seems to me that the threat of being sued by an owner is ALWAYS present, and hangs over the head of all owners in the association, but so is walking out in front of a moving car, it's there, but it's not new or novel.......so be it. If every threat of a law suit ended up in court you could not even hold a court for the backlog of cases......relax a little, do the job. Don't get involved with 'scope creep.'

James,
I am a little confused here (not abnormal for me).
Are you suggesting the collection of a fee for not paying assessments on time is the cost of the "late" fee notice preparation, mailing, etc. I agree that this cost should be reflected in the amount of fine and should be set at X dollars and explained in the bill. But the fine is for the covenant violation primarily.
At least I think so.
Of course each association will do what they do, and each have variations of how much explanation is on these notices. Our documents provides for a late fee schedule but no requirement to explain the cost other than a special bill for late payments and I think a reference to the covenants applied.

Robert, below is what oue Board passed as a resolution (after owner Notice & Comment) to clarify with all owners what the late pays for and what it means.

"Late Charges Imposed on Delinquent Payments. Assessments shall be past due and delinquent if not received at the office of the Property Manager as specified above. The association shall impose a $25.00 late charge on the outstanding or past due balance then due the association. The late charge shall be a “common expense” for each owner who fails to pay the assessment by the due date as specified above. A late charge will be imposed each month that the scheduled payment is past due.
The late charge shall be the personal obligation of the owner(s) of the unit for which such assessment is unpaid. All late charges shall be due and payable immediately, without notice, in the same manner as for payment of assessments."

The key is that unpaid late fees are the same as unpaid common fee assessments. If they remain unpaid, they constitute the basis for an automatic lien on the unit with foreclosure as a possible outcome.

Jim

Our board decided to wait until contacted by an attorney as was suggested by someone who responded. I was questioning if anyone has heard whether it was "illegal" (some new law) and since no one commented I'm assuming the delinquent owner is "blowing smoke" as our manager and board has thought. I've been on the board for seven years and with only 28 units we've hardly had any problems with owners paying that late. We had one go into foreclosure which I'm assuming many HOA are dealing with now. Even though this delinquent owner has attacked and threatened us personally, which goes with the territory of being on the board, we've been lucky we haven't had more problems. Thanks for the response.

You don't state what type of association you are, but assuming you are a Washington State condominium association that was created after July 1, 1990, late fees are not illegal per se.

RCW 64.34.364(13) states, "The association may from time to time establish reasonable late charges and a rate of interest to be charged on all subsequent delinquent assessments or installments thereof."

Most declarations copy the language from the statute.

However, I think the delinquent owner may be claiming: a) no late charges were properly established by the association; b) the established late charges are unreasonable; c) the established late charges are limited by your association's established collection policy to a specified number of times and that number has been exceeded; and/or d) the late charges are an inappropriate double charge for costs to the association (e.g., costs from the management company for sending the delinquency letter.) that are instead covered under RCW 64.34.364(14) and collectable separate from the late fee.

Notwithstanding the foregoing, if the Association's attorney is too aggressive in imposing and pursuing the collection of late fees (especially if it is not clear whether management fees incurred because of the delinquency are covered by the late fee or are instead costs of collection), costs, and a "security deposit" and gets challenged on it by a delinquent owner of owner-occupied property, the attorney will likely drop those incidental fees or suffer a potential Fair Debt Collection Practices Act lawsuit and a required withdrawal from representing the association against that owner. Therefore, some community association attorneys throughout the country recommend not pursuing every last fee and charge possible against the owner. See, e.g., http://tinyurl.com/yhltj4b (about Maryland and Virginia), especially if the authority for it is questionable and the owner raises a challenge to it. However, the opinion of your association's attorney is likely to be based on whether or not they have been sued for Fair Debt Collection Practices Act violations lately. Some have and are conservative; others especially in the Puget Sound area seem not to be sued that often for FDCPA violations and are more likely to risk it.

My 2 cents:

HOA assesses a $50 one-time PENALTY on all accounts that are 60 days past due. It also charges interest at 1.5% monthly on the outstanding balance until the account is paid in full.

The membership recently voted to amend the bylaws to include a stiffer penalty. However, our attorney advised us that penalties can raise the amount owing significantly and that the courts tend to think of repetitive penalties as "interest". The usury law here is, (I believe) around 45% annually. Since the assessments are aroung $150 annually, the $50 penalty represents about 33% of the amount owing. The Association would only be able to add another $50 in penalties before the issue, ah, becomes an issue.