Academy/Collections & Delinquencies
Payment plans
What a board can and cannot decide on its own when a delinquent owner asks to pay over time.
A payment plan lets a delinquent owner pay off a balance in installments instead of all at once. Whether to offer one, and on what terms, is generally a choice set by your governing documents or board policy, not a legal requirement, though how payments get applied and where you discuss terms may be set by state law.
What a payment plan actually is
A payment plan is an agreement, usually board approved, that lets an owner pay a delinquent balance over several months instead of in one lump sum. It differs from a hardship arrangement, which is a modified schedule granted for a documented financial hardship. A payment plan is the standard option your policy offers to any delinquent owner who asks; hardship terms are the exception layered on top of it.
Nothing in federal or state collection law requires a board to offer a payment plan at all. Whether to offer one, who qualifies, and how many months to spread a balance over are typically choices your declaration, bylaws, or a board adopted collection policy make, operating inside whatever your state's collection statute allows. See Building a collection policy for how to set those terms in writing before you need them.
Where each payment goes once the plan is running
A payment plan does not by itself change how an installment is applied to what the owner owes. Some states set that order by statute; check yours before writing your own policy. California requires the assessment balance to be paid down first, before any late charge, interest, or collection cost.
"[Payments] shall first be applied to the assessments owed, and, only after the assessments owed are paid in full shall the payments be applied to the fees and costs of collection, attorney's fees, late charges, or interest."
Source: California Civil Code Section 5655, California Legislature, via Justia
If your state has no such rule, your own policy should still spell out the order clearly, because otherwise a plan can leave the assessment balance looking perpetually delinquent even while the owner is paying every month. See Applying owner payments for the mechanics.
Where the board discusses the terms
A specific owner's payment plan request is a personal financial matter, not open-meeting business. Whether your state requires this by law, or it is simply good practice, varies. California requires the board to meet in a closed executive session to discuss a payment plan, though the fact that the board met on it must still show up in the minutes of the next open meeting.
"the board shall adjourn to, or meet solely in, executive session to discuss a payment plan pursuant to Section 5665."
Source: California Civil Code Section 4935, California Legislative Information
Keep the request and its terms out of board packets that go to the whole membership. See Protecting confidential collection information.
Check yourself
Answer before you read the explanation, recalling it is what makes it stick.
A board member says state law requires the association to offer a payment plan to any owner who asks. Is that right?
An owner on a payment plan sends a partial payment. In California, how must the association apply it?
Where should the board discuss the specific terms of an owner's payment plan request, if your state follows California's approach?
Sources
- California Civil Code Section 5655, California Legislature, via Justia
- California Civil Code Section 4935, California Legislative Information
Collections & Delinquencies
Ready to put this in writing? Turn your approach into a written collection policy so every owner gets the same offer.
Whether a board must offer a payment plan, how partial payments get applied, and whether plan terms must be discussed in executive session all vary by state and by your governing documents.