Collecting HOA Dues
Collecting unpaid dues from homeowners, usually neighbors, in a planned community is an unpleasant but necessary task that the HOA board must undertake. Under North Carolina law, HOAs have a couple of different mechanisms they can employ to collect from delinquent homeowners:
File a lien and foreclose
The most often utilized process is filing a lien and foreclosing, if necessary. Prior to filing the lien, the HOA must send the homeowner a demand letter containing specific language required by the NC law. A limited title search should also be performed to confirm the legal ownership of the property and to determine if a tax or mortgage foreclosure is pending. The lien must then be properly served on the homeowner. HOAs are required by law to use reasonable and diligent efforts to maintain the correct addresses of homeowners to ensure they receive proper notice.
If the homeowner remains delinquent after the lien is filed, the HOA can proceed with a foreclosure. The process is similar to a bank foreclosing on a mortgage. A hearing is required before the clerk of court and the foreclosure sale usually held a few weeks later. The HOA can bid on the property at the sale and purchase if it so wishes, however there are important matters to consider in making the decision whether to purchase including, the existence of other liens, cost of insurance and related incidents of ownership. Often, delinquent homeowners will surface prior to the foreclosure hearing and seek to work out a payment plan or other arrangement to bring their account current in lieu of losing their home.
File a lawsuit
An HOA can also sue the homeowner for the unpaid dues. This can be done in small claims court, depending upon the amount owed. If successful, the HOA will obtain a judgment against the homeowner which it can then attempt to execute upon by having the sheriff seize and sell the homeowners real and personal property. In the context of a lawsuit, the homeowner can assert counterclaims against the HOA, which is a drawback when compared to the foreclosure process.
In closing, the HOA’s board should adopt and consistently adhere to a written policy which describes how unpaid dues will be dealt with. We highly recommend that the board retain legal counsel experienced in representing HOAs to handle collections given the many potential risks involved, including violating fair debt collection laws. If handled properly, the HOA should be entitled to recover the attorneys’ fees expended in retaining the assistance of legal counsel. Please give me a call at 919-821-7700 or email me at firstname.lastname@example.org if you need assistance with HOA management, collections or interpretation of governing documents.