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Could Your HOA Wreck Your Credit?

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If you live in a community within a homeowners’ association, you probably have to pay association dues. They can run anywhere from less than $100 a year to more than $1,000 a month, depending on the community.

What happens if you don’t pay? Will it ruin your credit rating?

It certainly can, as some of our Credit.com readers have found out:

  • “Not Guilty” is dealing with damaged credit as the result of judgment arising from unpaid (and disputed) HOA dues.
  • “Justneedmoretime” can’t get a loan modification due to the lien for homeowner dues placed against the property — and has received a court summons.
  • “Sue” has also been taken to court after withholding her dues because the association did not make repairs she believes they were required to make.

All of these readers are facing severe negative items on their credit reports that can significantly drop their credit scores.

What can HOA members do to protect themselves?

First, understand that dues typically don’t show up on credit reports unless there is a problem. Mike Hunter with Horack Talley in Charlotte, N.C. represents more than 500 HOAs in North Carolina. He says, “None of the HOAs I represent nor their management companies report debts to the credit bureaus. They only way they could show up is if a lien, foreclosure or judgment is filed. The reporting agencies have people that comb the public records for this information, and that’s the only way it can show up in a homeowner’s credit report.”

How to Avoid Credit Damage

Having trouble paying your dues? “Try to make a payment arrangement with the HOA to get you caught up,” suggests Mike Boyd who has been the president of his HOA for 13 years. “It’s also best to do this before your account is sent to the HOA’s attorney for collection, because as soon as that happens you will also be liable to pay all the attorney’s fees and expenses for handling this matter,” he says.

Take this obligation seriously. Don’t assume that just because you are delivering the check to someone in your neighborhood that you can let it slide if you’re short on money that month. “HOA obligations due on a property are legally binding promises that are enforceable under the law,” warns Matthew Reischer, Esq., CEO of LegalAdvice.com. “HOA collections can result in assessments, interest, violations, late fees and fines. The debt owed can also result in a lien on the property or be a basis for wage garnishment proceedings,” he adds.

Monitor your credit. If you are experiencing any problems paying your dues, get your free credit report once a year to see whether anything has been reported. It is also a good idea to get your free credit score monthly so you’ll be aware if it changes dramatically.

And before you buy a home within one of these communities, make sure you read and understand the deed restrictions. “If you paint your house, you had better pick exactly the right color if you live in a home that is subject to a homeowners’ association. If you are late on your assessments, you may find yourself out of a home,” warns Kenneth G. Eade, an attorney who has seen both of those situations and plans to incorporate those kinds of problems in his next novel in the Brent Marks Legal Thriller Series. “These (battles) have diverted the income that my clients could have used to remedy these petty problems when HOA busybodies would rather litigate to get their way than to compromise. “

“Does it affect your credit rating?” he asks. “That and all other aspects of your financial life!”

More on Credit Reports and Credit Scores:

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  • http://www.Credit.com/ Gerri Detweiler

    Fascinating! Thanks for your insights.

  • http://www.snapcollections.com MITCH DRIMMER

    A recent study conducted sponsored by a major credit
    repair firm and conducted by Harris Poll asked specific questions
    related to what people understand about credit scoring, how they are arrived at, and the information that is taken into consideration to determine them.

    The study revealed some surprising information. Even though credit scores affect Americans in many important ways including the price they pay for credit and insurance many people are mis-informed about the entire process. This is shocking as your credit score can not only affect your ability to get credit but also impact on your ability to obtain employment.

    By not understanding how credit scores are formulated consumers could reduce those scores and impact their lives in negative
    ways. This can affect your entire life according to the experts who
    sponsored this survey.

    The survey which was conducted by the Harris Poll showed these alarming results:

    According to the results of the survey, while 63% of Americans are at least somewhat concerned about their current credit score, a quarter (25%) of those who have a bad or fair credit score, say they are prevented from taking action because they don’t know where to start.

    A few surprising findings uncovered were:

    1. 45% of U.S. adults are only somewhat familiar with what goes into their credit scores, and 14% say they’re not familiar at all with the process.

    2. 21% of U.S. adults are not sure what information appears on a credit report

    3. 41% U.S. adults say they are very concerned/concerned about their current credit scores

    4. 18% of U.S. adults mistakenly believe that online purchases factor into credit score calculation

    5. 18% of U.S. adults mistakenly believe gender factors into credit score calculation,

    6. Of those who have a bad or fair credit score, 30% say they are
    prevented from fixing/taking action on their credit score because it is too expensive to fix it.

    Community associations are faced with delinquent owners every month, in good times and bad times, but the problem is even more serious. When some property owners don’t pay their fair share the problem can go viral in that the shortfall is passed through to good paying families who have budget well but are not prepared for an increase in their maintenance fees. A domino effect happens and where only a few people should have their credit scores affected many more do. This can be prevented by early reporting of delinquent property owners.

    The solution is not to change the credit reporting system but to
    utilize it so that the delinquent owners who start this potential cycle
    of pain are made aware of the damage they are doing to themselves and their neighbors. Community associations must consider utilizing collection agencies to get those early delinquencies reported so that payments will be made and others are put out of harm’s way. If you are on a board of directors of a condo or HOA do association, yourself, and the good paying members a favor and have the delinquent owners reported to credit bureaus so that they will take action to make timely payments.

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