Assessments and Collections Flashcards

What distinguishes an 'operating' assessment from a 'reserve' assessment in a community association's budget?

Answer: Operating assessments fund day-to-day expenses; reserve assessments fund long-term replacement of major components

Operating assessments cover recurring expenses like utilities and maintenance, while reserve assessments accumulate funds for future large-scale repairs or replacements of common elements.

An owner purchases a unit at a foreclosure sale conducted by the first mortgage lender. In a state without super-priority lien law, what typically happens to the pre-existing HOA assessment liens?

Answer: Junior HOA liens are typically extinguished by a senior mortgage foreclosure, but post-closing assessments become the new owner's responsibility

In states without super-priority status, the HOA's lien is subordinate to the first mortgage and is extinguished when the senior lender forecloses, but the new owner owes future assessments.

A board wants to increase regular assessments by 25% next year. Which governing document provision would most likely require owner approval for this increase?

Answer: A cap on assessment increases in the CC&Rs or bylaws requiring a membership vote above a certain percentage

Many CC&Rs or bylaws cap how much the board can raise assessments unilaterally (e.g., 10-15%), requiring a member vote for increases above that threshold.

Which of the following best describes the 'acceleration' clause in HOA collection proceedings?

Answer: A clause allowing the association to declare all future assessments for the year immediately due upon a default

An acceleration clause allows the association to declare the entire remaining balance of assessments for the year (or another period) due immediately once an owner is in default.

What is the main reason associations should avoid routinely waiving late fees or interest for delinquent owners?

Answer: Inconsistent waiver practices can be seen as selective enforcement and undermine the collection policy's effectiveness

Routine waivers create inconsistency, may expose the association to fair housing claims, and signal to owners that the policy is not enforced, encouraging future delinquency.

Which professional is typically best qualified to advise an HOA board on the legality of its proposed assessment collection procedures?

Answer: A community association attorney licensed in the relevant state

A community association attorney familiar with state-specific statutes and the association's governing documents is best positioned to ensure collection procedures comply with applicable law.

An association receives a partial payment from a severely delinquent owner but the amount is less than the total owed. What does a properly drafted collection policy typically specify regarding acceptance?

Answer: Partial payments may be accepted without waiving the right to collect the remaining balance

A well-drafted policy allows the association to accept partial payments and apply them per the policy or statute while preserving the right to pursue the outstanding balance.