Each week, we have a condominium co-owner, homeowners association member, or tenant ask a question such as, “Why did I get a late charge when I paid on time?” or “Why do I get a late charge every month when I am paying?
The answer is that the account is carrying a balance from the previous month or months, and the payment applied to something other than the current assessment or rent.
Late Charges in General
It is a common misconception that the assessment or rent is due by the 10th or the 15th of the month. This is incorrect. The payment is due on the first day of the month. The 10th or the 15th of the month is not the due date, it is the end of the grace period. The payment is in default if it is not received in full by the first. Governing documents will commonly state:
Monthly installments of the annual assessment are due on the first day of each month. The payment of an assessment shall be in default if such assessment, or any part thereof, is not paid to the Association in full on or before the due date for such payment.
Late charges are automatic at the end of the grace period, after 10 or 15 days of default. Governing documents will commonly state:
A late charge shall be assessed for any assessment in default paid more than ten (10) days after its due date. The late charge shall be in the amount of Twenty-Five Dollars ($25.00), or such other amount as may be determined by the Board of Directors from time to time.
Payment Application Formulas
Most condominiums and some homeowners associations have a payment application formula in their master deed or declaration of covenants, conditions, and restrictions. An example of common language would be:
All payments shall be applied: first to the costs of collection, including actual attorney fees (not limited to statutory fees); second against late and/or administrative charges; third, towards interest; and finally, against assessments in order of oldest delinquency.
When a community association member makes a payment, the association applies it to legal fees and late charges before assessments. Because of this formula, if any balance is unpaid, then it is characterized as an assessment or part of an assessment. Therefore, the Association applies a late charge each month that any balance is unpaid on the 11th or the 16th day of the month:
- Whether or not a payment is made in that month, and
- Regardless of what day of the month it is paid.
Oldest Invoice
Community associations that do not use a payment application formula, along with most apartments and rental homes, apply payments in order of oldest invoice.
For example, the residents paid late in January and incurred a late charge, which they did not pay. When the residents send the February payment, the oldest outstanding invoice is the January late charge. The association or landlord will apply part of the payment to cover the January late charge, and the remainder of the payment to the February assessment or rent. This means the February assessment or rent will not be paid in full, and the residents will receive another late charge for February, even if they submitted the payment before the February late date. This will continue until the account is paid in full, including all late charges.
Why doesn’t the Association waive all the late charges when I pay? Isn’t that just extra money?
Not necessarily. Many community management agreements specify that the association pays half or all the late charge to the management company. This covers the community manager’s extra work in sending late notices, maintaining the delinquency ageing report, preparing delinquency status letters to the Board of Directors, or preparing the accounts for transfer to the collection attorney. If an association with one of these management agreements waives late charges, then it is out of pocket for the portion of the late charge paid to the management company. Landlords may have similar arrangements with their property managers.
We Can Help
Do you have collection needs with your condominium association, homeowners association, apartment, or rental home? Our attorneys have decades of experience with these matters. Please call us at (248) 349-6203 or email us using the contact form.
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