Generally, usury laws should not apply to homeowners association late fees. However, some courts have not agreed. Usury laws apply only to loans and homeowners association assessments are not considered loans. However, homeowners and/or their attorneys occasionally attempt to argue that an association’s interest and late fees are usurious. In order to fully protect an association, in the event a homeowner becomes delinquent with assessments, penalties charged to the account should not exceed the usury limits.
Under usury laws, penalties for non-payment must not exceed 45% of the principal balance due. Penalties included in the 45% calculation are interest, late fees, processing fees, and tracking fees. Attorneys’ fees are not included in the calculation. For example, consider an association with monthly assessments of $100.00. Assume the homeowner has not made any payments since before January 1. The association has monthly late fees of $20.00, monthly interest charged at ten percent per annum of the principle amount, and a monthly processing fee of $20.00. By June 30, 2009, the homeowner owes $600.00 in principle (assessments), plus $120.00 in late fees, $17.39 in interest, and $120.00 in processing fees. The total “penalties” on the account by June 30, is $257.39. $257.39 is 42% of $600.00. Any attorneys fees spent in attempting to collect this balance due are not considered in this calculation. Therefore, in this scenario, the penalties are not usurious.
However, if the assessments in this scenario were quarterly assessments, the total principle owed by June 30 would be $200.00. The penalties would still be $257.39. In this modified scenario, the penalties would be 128.7% of the principle balance due and could expose the association to liability under the usury laws.
Although usury laws are not generally applied to assessment payments, associations should verify that any late fees, interest, processing fees, and tracking fees applied to a delinquent homeowner’s account would not expose the association to liability in the event a Court applied the usury restrictions. This concern can be easily addressed before any future problems arise. If you have any questions regarding your particular association, please contact your collections attorney at 303.432.999, who would be happy to determine if the current penalties are within usury limits.