When an HOA homeowner has failed to pay their fees, the board has a fiduciary responsibility to pursue collection of that money. The entire community depends on the benefits of dues. If the board can’t pay for services that are expected by the community, there could be significant problems.
There are many options to pursue payment of late fees. The non-legal options include a friendly reminder that they missed the payment, an official notice with late fees spelled out, or denying access to community services for that homeowner. HOAs have had success with these options.
However, if the homeowner still does not pay the money owed to the association, more drastic action has to be taken. The next step would be to file a lien against the property. After the lien is filed, the association can pursue a personal money judgment to collect the funds owed. Details on lawsuits in small claims court vary by state, but this gives you some pros, cons, and generally how the process works.
Using small claims court when your homeowner hasn’t paid only makes sense in certain situations. Understanding the process helps the pros and cons clearer. And reading the pros and cons can help you decide if this is the best option for your board.
Process of Suing in Small Claims Court
One element about using small claims court that is appealing is not having to use a lawyer. This is “the people’s court,” and both sides are represented by people who aren’t attorneys. Saving on attorney fees might be very important for your association.
In most places, starting the process is very easy. You fill out small claims forms, which can often be found and even filled out online. Most of the information is pretty straightforward, such as the name and address of the property owner. The complaint—what the dispute is about — usually asks why the owner owes the association money; when the payment was due; how the amount was calculated.
The HOA files the forms pays what is usually a small fee, and the court sets a date. Once the date is set, the association is required to serve the homeowner. The deadlines for that vary depending on that state.
The court may offer some mediation options. If instead, your case goes before a judge, only the association management or board member may represent the association. The judge hears the case and will either take time to deliberate or give their judgment right then.
If the association wins, there are still some steps to receive the payment. Now that they have a judgment lien, they can force a sale of the property, levy the homeowner’s bank accounts, or garnish their wages. The homeowner can appeal this decision, in which case it moves up to Superior Court. At this point, the association needs a lawyer to represent them.
If the judge rules against the association, they are usually not allowed to appeal. There might be other options for them, but an attorney needs to guide them and help to execute whatever route.
Pros of Pursuing Payment Through Small Claims Court
The top benefit which has been given by HOAs for using small claims court is time and money. Mainly when the amount owed is not too large, going to small claims court might make the most sense. The only costs are the filing fees. If the judge rules in favor of the association, those fees are likely to be given to the homeowners.
The time it takes for the case to go before a judge is much shorter than other possible options. Hence, the association saves money by not paying attorney fees. And the payment of the debt happens in a shorter amount of time.
Cons of Small Claims Court
There are some drawbacks to pursuing payment through small claims court. Usually, the process benefits the homeowner more than the association. Some states mandate that only the homeowner can appeal the decision. There also is a limit on the amount of money the association can win. In most states, the cap is $5,000, which includes fees. You can’t get around this cap by filing multiple suits; there is a limit of two $2,500 lawsuits a year. On top of that, if the homeowner sues the association in small claims court, they can win up to $10,000.
Not being able to use an attorney in court could also be a challenge. (Though attorneys can help you with the initial paperwork, and prep for court). If the case winds up going to Superior Court, the association has to hire an attorney. So if your decision is based on cost, keep that in mind. You may save on attorney fees when you represent yourself in court. However, if you lose and go to Superior Court, you might wind up paying an attorney even more. And if you win in Superior Court, you might not be able to get those attorney fees back.