A board touches its late fee rule every month, and it's easy to get wrong. A fee the governing documents don't authorize, or one set higher than state law allows, can turn a routine reminder into a dispute.
Before setting HOA late fees, the board should know where its power to charge comes from. The declaration usually grants it, and in some states the statute caps the fee, the interest rate, or both.
Florida and North Carolina write their rules in different ways, and each is a useful model for reading your own state's rules. Once the board knows its limits, the next job is writing them into the HOA collection policy and applying them to every account the same way.
Where the authority to charge comes from
Start with the declaration, the recorded covenants that govern the community. Many declarations say whether the association can charge a late fee, how much it can be, and whether unpaid assessments bear interest. Some name a dollar amount. Others let the board set the amount by resolution within a limit. If you haven't read that section in a while, CC&Rs explained covers where it usually sits and how to read it.
State law comes next. Some states cap the late fee, set a default interest rate for when the documents are silent, or require the governing documents to authorize the fee before the association can charge it. Read the two together: the declaration says what the association may charge, and the statute, where one applies, can narrow it.
A third layer sits under both. The board's own adopted policy fills in the details the documents leave open, such as the length of the grace period or the day the fee posts to the account.
How Florida writes its rules
Florida's statute on payment for assessments and lien claims covers late fees, interest and the order payments are applied. If the governing documents allow it, the association may charge an administrative late fee "not to exceed the greater of $25 or 5 percent of" each late installment. Unpaid assessments bear interest from the due date at the rate in the declaration or bylaws. If the documents don't state a rate, the statute sets 18 percent a year, simple interest. Compound interest isn't allowed.
Take a hypothetical. A Florida association bills a quarterly assessment of $600, and an owner pays late. Five percent of $600 is $30. The greater of $25 and $30 is $30, so the late fee can be up to $30. On a $400 quarterly assessment, 5 percent is only $20, and the $25 figure becomes the cap.
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Now add interest, assuming the declaration and bylaws are silent and the 18 percent default applies. A year of interest on $600 is $108, which is $9 a month. After one month, the owner owes $600 in assessment, a $30 late fee and $9 in interest, for a total of $639.
The statute also fixes the order payments are applied: accrued interest first, then the administrative late fee, then costs of collection and reasonable attorney fees, then the delinquent assessment. That order holds regardless of any restrictive endorsement on the payment. If the owner in the example sends a check for $600, it covers the $9 of interest, then the $30 late fee, then $561 of the assessment. The account still shows $39 of unpaid assessment, which is the $639 owed less the $600 paid.
How North Carolina writes its caps
North Carolina's Planned Community Act lets an association "impose reasonable charges for late payment of assessments." The charge is capped at the greater of $20 per month or 10 percent of the unpaid installment. Past-due assessments may bear interest at a rate the association sets, up to 18 percent a year. For communities created before January 1, 1999, interest doesn't apply unless the declaration provides for it.
A second hypothetical. A North Carolina association bills $150 a month. Ten percent of $150 is $15, and the greater of $20 and $15 is $20, so the late charge can be up to $20. At $250 a month, 10 percent is $25, which is greater than $20, so the cap becomes $25.
Both states use a greater-of formula. The dollar figure sets the cap for smaller installments, and the percentage takes over as installments grow. A board that bills monthly and one that bills quarterly can land on different caps under the same statute, so run the arithmetic on your own billing amount.
The written late fee rule
Whatever your state, the late fee rule belongs in writing, adopted by the board and sent to every owner. The written rule should state:
- The fee amount or formula, and the declaration section that authorizes it
- The due date, the grace period, and the day the fee posts
- The interest rate, the date interest starts, and the declaration section or statute it comes from
- The order payments are applied, whether a statute fixes it or the board sets it
- Who can waive a fee, on what grounds, and where the waiver gets recorded
Write the arithmetic in, too. If the cap depends on a percentage of the installment, put the resulting dollar figure for your current assessment in the policy.
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Have the association's attorney review the fee language before the board adopts it. The attorney can confirm how the declaration and your state's statute fit together and whether anything in the documents needs an amendment first.
Can an HOA charge late fees automatically?
Yes, if the documents authorize the fee, the board has adopted the rule, and the amount stays inside any cap your state sets. Once the amount, the grace period and the posting day are set, software can apply the fee on schedule to every account that hasn't paid. The board still decides the rule. The software applies it on the same day, to every account, without anyone choosing whose account gets charged.
The setup steps are covered in how to automate HOA late fees and payment reminders. Before turning it on, check the configured amount against your declaration and any statutory cap, and check the interest rate the same way.
Applying the fee to every owner the same way
A late fee is easiest to defend when every owner gets the same treatment. When the board waives a fee, it should follow the written grounds and record the decision.
HOA-OS supports that on the Community plan ($49 a month). The board sets its late fee rules once, and HOA-OS applies late fees automatically under those rules and sends owners reminders before and after the due date. Each unit's ledger shows every charge, fee and payment in order. Every plan starts with a 30-day free trial; see HOA-OS pricing for the details.
Sources
- Florida Statutes 720.3085, Payment for assessments; lien claims, Online Sunshine, Florida Legislature
- North Carolina General Statutes Chapter 47F, Article 3, Management of Planned Community, North Carolina General Assembly
Related Reading
- What Happens If You Don't Pay HOA Fees? (And How Boards Should Handle It)
- Automating HOA Dues Collection Before It Burns Out Your Treasurer
- How HOA Dues Work: A Plain-English Guide for Boards and Owners
An HOA's authority to charge a late fee comes from its declaration first, and state law can cap or condition what the declaration allows.