Homeowners associations (HOAs ) have various avenues to pursue the collection of delinquent HOA assessments from homeowners. One alternative that can be very effective and which is often avoided by HOAs is to file an action against the homeowner in the local small claims court. Because most assessment collections involve amounts that are under the statutory limit of small claims actions (typically between $3,500 and $10,000 – determined by the state laws in the HOA jurisdiction), an HOA can file a suit directly against a delinquent homeowner personally and avoid going through the expense, and delays that generally accompany pursuing collection through the alternative lien and foreclosure remedies. Furthermore, pursuing assessment collections in small claims court avoids the need to worry about, and comply with, many of the notice and alternative dispute requirements that are typically a prerequisite to the use of lien and foreclosure collection remedies.
Each state has its own statutes governing small claims actions which are designed to be informal and expeditious and, in many states the parties are not allowed to be represented by attorneys or the use of attorneys is optional. Thus, by effectively utilizing a small claims court, an HOA that has a board member, managerial employee, or duly authorized officer who is willing to appear at the small claims hearing, may easily pursue the collection of assessments against a delinquent homeowner before the unpaid amounts exceed the small claims court’s jurisdiction. To take advantage of the economy and expediency of a small claims action, an HOA must take prompt action to enforce its rights against a delinquent owner. In fact, it could be argued that because the jurisdictional limits of the small claims court are generally well in excess of the amounts that are owed for delinquent regular assessments, there should be no need for an HOA to file a much more costly action in a higher level court that necessitates the use of legal counsel for the HOA. Thus, a need to file an action in a court with jurisdiction in excess of the small claims court’s jurisdiction may be indicative of negligence on the part of the HOAs management personnel in pursuing the collection of delinquent accounts.
Advantages of pursuing the collection of delinquent assessments in small claims court include: (i) the process is less costly than higher level courts (no or significantly less attorney fees, lower court filing fees, and lower costs to serve papers); (ii) delinquent owners often bring their accounts current or work out a payment arrangement before the hearing; (iii) the process is much faster (hearings are held within weeks and decisions are immediate, or within days; (iv) the proceedings are informal and avoid the technical and evidentiary issues that accompany higher level cases.
While utilizing a small claims court to collect unpaid assessments is definitely beneficial to HOAs, there are some limitations that are typically associated with small claims court jurisdiction, such as: (i) amounts that are owed in excess of the court’s maximum jurisdictional amount cannot be awarded to the HOA; (ii) typically, the defendant (homeowner sued by HOA) has a right to appeal an adverse small claims judgment, but the plaintiff (HOA) does not; (iii) if an appeal is filed, the claims are reheard in the appropriate state court and both parties are entitled to be represented by legal counsel at the appellate level; and (iv) there may be limitations on the amount of recoverable attorney fees incurred in the appeal.
A money judgment that is obtained in a small claims proceeding is a personal obligation of the homeowner and if it is not paid, the HOA can record an abstract of the judgment (a document issued by the court) which creates a lien against the homeowner’s real property that is situated within the county were the abstract is recorded (not just the property that the assessments related to). State statutes specify the procedures that must be followed in order to enforce the lien. An unpaid judgment against the homeowner may also be enforced by the HOA against other non-exempt assets of the homeowner through levies on personal property and/or garnishment of wages.
While efforts to collect delinquent assessments through structured payment arrangements with the homeowner should always be employed, HOAs should not allow homeowners to get too far in arrears before action is taken. Delinquent assessments are a normal part of the operations of an HOA and properly run HOAs have policies and procedures governing the process for the collection of their delinquent assessments. Those policies and procedures should include the effective use of small claims actions where appropriate. HOAs should know the jurisdictional limitations of their local small claims courts and the procedures in their jurisdiction for pursuing small claims actions and become familiar and comfortable with the process as it may be the fastest and most cost-effective method of collecting delinquent assessments. Information concerning a state’s small claims laws and the procedures for filing a small claims action can be found on court websites.