Are Homeowners Association Fees Included in Escrow?
Confused about homeownership payments? Learn whether HOA fees are typically included in your mortgage escrow account and how they're managed.
Homeownership involves various financial considerations, and understanding how different costs are managed is important. An escrow account is a financial arrangement where a neutral third party holds funds or assets on behalf of parties involved in a transaction until specific conditions are met. Homeowners Association (HOA) fees are another common financial aspect for residents in certain communities. This article clarifies whether these HOA fees are typically included in real estate escrow accounts.
Understanding Real Estate Escrow Accounts
An escrow account is a dedicated account established by a mortgage lender. Its purpose is to hold funds for recurring property-related expenses on behalf of the homeowner and lender. Each month, a portion of the homeowner’s mortgage payment is allocated to this account.
Expenses typically included in a mortgage escrow account are property taxes and homeowner’s insurance premiums. Lenders require escrow for these items to ensure payments are made on time. This practice protects the lender’s investment by mitigating risks such as tax liens or uninsured property damage, which could jeopardize the collateral’s value.
Understanding Homeowners Association Fees
Homeowners Association (HOA) fees are regular dues that homeowners within a planned community are required to pay. Their purpose is to cover costs associated with the maintenance, repair, and improvement of common areas, shared amenities, and services within the community. This includes landscaping, pool maintenance, security, communal utilities, and administrative costs.
These fees are structured as monthly or quarterly payments, as outlined in the community’s covenants, conditions, and restrictions (CC&Rs). The fees represent a direct financial obligation of the homeowner to the HOA. The average HOA fee can range from $200 to $400 per month, depending on the property type, location, and amenities provided.
HOA Fees and Escrow Inclusion
HOA fees are generally not included in a standard mortgage escrow account. While property taxes and homeowners insurance are escrowed by lenders to protect their collateral, HOA fees operate under a different framework. The primary reason for this distinction is that HOA fees are a separate contractual obligation between the homeowner and the homeowners association, distinct from the mortgage loan agreement itself.
Lenders typically do not collect, manage, or disburse HOA fees because these fees are not directly tied to the mortgage’s security or repayment in the same manner as property taxes and insurance. Billing schedules for HOA dues, which can be monthly, quarterly, or annually, often differ from the monthly mortgage payment cycle. While some exceptions exist, collecting HOA fees is not standard practice for mortgage lenders.
Direct Payment of HOA Fees
Since HOA fees are not escrowed by the mortgage lender, homeowners are responsible for paying them directly to the Homeowners Association. Homeowners receive invoices directly from the HOA for these payments. Common payment methods include using the HOA’s online portal, setting up direct debit from a bank account, or sending payments by mail.
It is important for homeowners to make these payments accurately and on time. Failure to do so can result in late fees, additional penalties, or legal actions by the HOA. HOAs can impose fines, restrict access to amenities, or place a lien on the property for unpaid dues. In some cases, persistent non-payment could lead to foreclosure proceedings by the HOA.