Arizona HOA late fees and interest

The cap is the higher of two numbers: $15, or 10% of the unpaid assessment. On a $250 monthly assessment, 10% is $25, so the most the HOA can charge is $25. On a $90 assessment, 10% is $9, so the $15 figure applies. A $25 late fee on a $150 assessment runs past the statute, because the cap there is $15.

Timing matters too. The payment has to be unpaid for 15 or more days after the due date, or longer if the community documents give more time. And the HOA can charge the fee only after it has sent notice that the assessment is overdue, or notice that it will be treated as overdue after a set date.

The $15-or-10% rule sits in the planned community chapter of Arizona law, and that chapter's definition of a planned community leaves out condominiums. The Condominium Act lets the association charge for late payment once it has given overdue notice, but it does not limit the amount. If you are buying a condo, read the late fee in the declaration and the rules, because state law will not trim it.

In a condo, past due assessments bear interest at the rate the board sets, subject to the condo documents. The planned community statute does not set an interest rate, so look for it in the CC&Rs.

Arizona also controls where your money goes. In a planned community, a payment on an unpaid assessment goes to principal first and interest second. In both HOAs and condos, unless you direct otherwise, payments go first to assessments, then to late charges the declaration authorizes, then to collection costs, then to court-awarded attorney fees, and only then to fines, interest, and other charges. Interest and fines are not part of the assessment lien; the association needs a court judgment before it can record a lien for them, and that lien cannot be foreclosed.

Read these before you make an offer:

• Whether the community is a planned community or a condominium.
• The late fee in the CC&Rs or fee schedule, and whether it tops the $15-or-10% cap in a planned community.
• Any grace period shorter than 15 days in a planned community.
• The interest rate on past due assessments.
• Late fees and interest already on the seller's account statement.

A late fee that ignores the cap tells you the board's documents have not kept up with state law. In a condo, a high late fee is legal, so you want to know the number before you own the unit.

An HOA Notes brief identifies the community type, checks the late fee and interest rate against the statute that applies, and cites the page behind each finding.

Arizona Revised Statutes section 33-1803 and section 33-1242 (Late fee cap (planned communities only)). In a planned community, a payment is late only if unpaid 15 or more days after its due date (or longer if the documents say so), and a late charge on an assessment is limited to the greater of $15 or 10% of the unpaid assessment and may be imposed only after notice that the assessment is overdue (33-1803(A)); payments go first to principal, then accrued interest. In a condominium, late charges also require prior overdue notice (33-1242(A)(11)), but no statute caps the amount. A condominium board may charge interest on past due assessments at the rate it sets subject to the condominium documents (33-1255(B)); planned community law sets no interest rate. In a planned community, late charges and interest are 'member expenses' (33-1802(5)), which are not enforceable as common expense liens notwithstanding the community documents (33-1807(B)); they are collected by judgment instead.

When you read the disclosure packet, watch for a planned community late fee of $25 on a $150 assessment, late fees charged the day after the due date in a planned community, and late fees charged without any notice that the assessment is overdue. HOA Notes flags each of these against the statute and tells you which restrictions are actually enforceable.