CMCA Assessments and Collections 4 — Questions and Answers
Question 1: What distinguishes an 'operating' assessment from a 'reserve' assessment in a community association's budget?
- Operating assessments fund day-to-day expenses; reserve assessments fund long-term replacement of major components (Correct answer)
- Operating assessments are optional; reserve assessments are mandatory by federal law
- Operating assessments can only be used for landscaping; reserve assessments cover insurance
- There is no legal distinction between the two types
Correct 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.
Question 2: 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?
- The buyer takes the unit free and clear of all HOA assessment liens
- Junior HOA liens are typically extinguished by a senior mortgage foreclosure, but post-closing assessments become the new owner's responsibility (Correct answer)
- The HOA must accept the foreclosure sale price as full payment of all arrears
- All assessment liens survive any foreclosure sale regardless of priority
Correct 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.
Question 3: A board wants to increase regular assessments by 25% next year. Which governing document provision would most likely require owner approval for this increase?
- The management agreement
- A cap on assessment increases in the CC&Rs or bylaws requiring a membership vote above a certain percentage (Correct answer)
- The reserve study
- The annual meeting minutes
Correct 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.
Question 4: Which of the following best describes the 'acceleration' clause in HOA collection proceedings?
- A provision that reduces the amount owed if paid early
- A clause allowing the association to declare all future assessments for the year immediately due upon a default (Correct answer)
- A requirement to file a lawsuit within 30 days of a missed payment
- A process for converting assessment debt to equity in the unit
Correct 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.
Question 5: What is the main reason associations should avoid routinely waiving late fees or interest for delinquent owners?
- It is illegal under federal law to waive any debt-related fees
- Inconsistent waiver practices can be seen as selective enforcement and undermine the collection policy's effectiveness (Correct answer)
- Late fees are the association's primary revenue source
- Waiving fees requires a unanimous board vote in all states
Correct 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.
Question 6: Which professional is typically best qualified to advise an HOA board on the legality of its proposed assessment collection procedures?
- The CPA preparing the association's tax return
- A community association attorney licensed in the relevant state (Correct answer)
- The reserve study specialist
- The property insurance broker
Correct 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.
Question 7: 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?
- All partial payments must be returned to avoid confusion
- Partial payments may be accepted without waiving the right to collect the remaining balance (Correct answer)
- Accepting any payment automatically resets the delinquency clock and waives late fees
- Partial payments require a board vote before being posted to the account
Correct 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.
CMCA Assessments and Collections 4
What distinguishes an 'operating' assessment from a 'reserve' assessment in a community association's budget?