How To Get Out of Paying HOA Dues

If you live in a condo, you are likely familiar with the term homeowners association (HOA), and the purpose it serves. An HOA essentially creates and enforces the rules governing the property and residents of a condominium or other type of community association. When someone purchases property that is part of an HOA, they automatically become a due-paying member. These dues, called HOA fees, association fees, or association dues, can be low or high, just as the HOA rules may be lenient or very restrictive. 

Understanding How an HOA Works

When a group of single-family homes or buildings with multiple units are organized into a single community or co-op, the community may choose to form an HOA. Through the HOA, each resident of the community has an equal say about how the community is run and managed. At least, in theory. An elected board of directors oversees the rules and regulations set forth by the HOA in its Declaration of Covenants, Conditions and Restrictions (CC&Rs). As the most important of all governing documents for an HOA, the CC&Rs includes any conditions placed on properties and owners, including what kind of fencing and landscaping is allowed, restrictions on pets, whether or not owners need permission to paint the exterior of their townhouse, and penalties for violations of these conditions. 

Generally speaking, becoming part of the HOA is a requirement for home buyers who purchase property run by an HOA. As such, paying HOA dues is also a requirement. The HOA may also impose special assessments, which are a temporary increase in dues for a specific project, such as repairing the community septic system, or removal of hidden mold or asbestos in common areas. Special assessments typically arise from unexpected expenses that are deemed necessary and are often the result of poor budgeting. This is one of the primary reasons people avoid buying HOA properties. 

Capital improvement assessments, on the other hand, are for renovations intended to increase the property value of all properties in the development. An example of a capital improvement could be the installation of an inground swimming pool, tennis courts, or a clubhouse. Although an increase in property values is generally a good thing, these projects can be quite expensive, and some property owners may not be on board with taking on the increased expense. For this reason, HOAs have more extensive bylaws for, and place greater legal restrictions on the adoption of capital improvement assessments. But if the HOA votes in favor and the project is implemented, all property owners will be required to pay the additional fee.

Consequences of Not Paying HOA Dues

Special assessments and capital improvement assessments that are deemed excessive or unnecessary are a common cause of legal action against HOAs by individual property owners. But not paying homeowners association dues can carry serious consequences. The ramifications of not paying these dues vary widely from HOA to HOA, but the specifics are usually detailed in your homeowners association CC&Rs. Failure to pay required assessments will likely result in the HOA initiating standard collection activities, such as sending demand letters, assessing late fees and making collection calls. If those preliminary actions are unsuccessful, the HOA may take legal action against the property owner, or even initiate foreclosure proceedings. 

HOA Foreclosures

Most people are aware of mortgage foreclosures, which occur when mortgage lenders reclaim titles on properties after owners have failed to make agreed-upon mortgage payments. But what is an HOA foreclosure? Well, from the standpoint of the property owner, an HOA foreclosure is very similar to a mortgage foreclosure in that the end result is the loss of property. Depending on state law, the HOA foreclosure will be either judicial or nonjudicial. In a nonjudicial foreclosure, the HOA can sell the property without involving the court, whereas a judicial foreclosure will be processed through the court system. In many states, the association can foreclose even without recording an HOA lien. And in some states, the association board can foreclose on a property even if the property owner only owes a few hundred dollars in dues. HOA foreclosures are a serious matter, and you should consult with a bankruptcy lawyer immediately if you are facing foreclosure for non-payment of dues. 

How to Deal with HOA Dues When Filing Chapter 7 Bankruptcy

For HOA members who wish to surrender their home, Chapter 7 bankruptcy may be the best option. If you file Chapter 7, you may be able to discharge past HOA dues if you don’t want to hold onto your property. 

Any dues that accrued up to the date of filing (pre-petition dues) will be discharged, but any dues incurred after the filing (post-petition dues) will still be owed. For example, if your monthly dues are $200, you file Chapter 7 on June 1st and the foreclosure goes through on September 1, you will be responsible for the $600 in dues that accrued during the three months between filing and title transfer (in this case, foreclosure). 

In some cases, you may be able to discharge outstanding dues and hold onto your home in a Chapter 7 bankruptcy, but this is only possible if no lien has been placed on your property. If there is a lien, the debt is secured. Since Chapter 7 bankruptcy only wipes out unsecured debts, any debt secured by a lien on your property will need to be paid. 

How to Deal with HOA Dues in a Chapter 13 Bankruptcy

Chapter 13 bankruptcy, on the other hand, deals primarily with secured debts. In Chapter 13, the debtor effectively reorganizes secured debts into a three-to-five year payment plan. If you wish to file bankruptcy but also hold onto any collateral property, including homes and vehicles, Chapter 13 may be the best option for you. 

If the HOA has placed a lien on your property for unpaid dues or special assessments, it may be possible to strip the lien if the outstanding balance on your mortgage is greater than the value of the property itself. Lien stripping is the process of removing junior liens (second and subsequent liens) when a Chapter 13 filer is “upside down” on their first mortgage, effectively prioritizing the primary lender. 

That being said, you will still be responsible for post-petition dues if you wish to keep your home. If, however, the HOA failed to execute a lien prior to your filing, your pre-petition HOA dues can be discharged when your Chapter 13 bankruptcy is complete, even if you decide to keep the home. Furthermore, if you decide to surrender the property in a Chapter 13, you will not be liable for post-petition HOA fees incurred before the title was transferred. 

Pros and Cons of an HOA

As a system of self-governance and democracy, HOAs have plenty of benefits. Instead of living at the mercy of some absentee corporation or landlord, the people living in the community association get to make the decisions about what’s in their best interests, in theory. They can set and enforce community rules and ensure the protection of property values. In reality, however, it is common for disagreements about fees, proposed improvements, and stylistic rules to escalate into heated disputes. In some cases, these disputes even require litigation. 

HOA board members are typically volunteers with their own families and careers; dealing with ongoing issues related to upkeep and general maintenance, as well as conflicts among members, can be overwhelming. As a result, it is common for the rules surrounding payment of dues to be black and white, and notoriously non-negotiable. Timely payment of dues is essential to ensure that the HOA runs smoothly, and volunteers simply don’t have time to deal with delinquent members. 

But life happens. If you have fallen behind on HOA fees and are concerned that you may lose your home as a result, it is in your best interest to consult with a bankruptcy attorney who is experienced in HOA foreclosures. 

How to Reduce HOA Dues

Short of filing bankruptcy, there really is no way to get out of paying HOA fees. At least not permanently. You can take some steps to reduce monthly fees, but doing so will likely require you to join the board of directors. As a board member, you can: 

• Analyze the budget for areas of overspending. 

• Review contracts with vendors (property management company/landscaping companies) and see if you can cut costs by making some changes.

• Request quotes from other insurance companies and be prepared to negotiate with your current insurer if other companies offer a lower premium. 

• Talk to the board about deferring non-essential projects. 

• If the reserve fund has sufficient cash, suggest using some of those funds to cover necessary projects. 

Of course not everyone has the time, energy, or desire to commit to HOA board meetings and duties. If you are considering purchasing an HOA property, make sure you familiarize yourself with the association’s rules, regulations, fees, and penalties before taking the plunge. If you are working with a real estate agent, they are not required to obtain a copy of the HOAs declarations and bylaws. However, if restrictive covenants exist, your realtor has a duty to discover and disclose these material facts. 

Conclusion

There are many advantages to living in a condominium or other community-structured complex, but when financial problems make it difficult to keep up with required payments, monthly dues can add up quickly. If you are overwhelmed by debt and considering bankruptcy as a path to debt relief, Upsolve offers an extensive library of free educational tools to help low-income debtors determine how to move forward. Bankruptcy might be the best option, but there are many alternative forms of debt relief you may want to consider first. 

If after researching the available options you decide to file Chapter 7, Upsolve offers a free filing tool. Chapter 13, however, can be quite complex and requires the help of an experienced attorney. For more information about bankruptcy and the many debt relief options available to you, visit Upsolve today.