Can You Pay Your HOA Fees in Advance?

Homeowners associations (HOAs) collect fees from residents to maintain common areas, amenities, and community welfare. A common question among homeowners is whether these fees can be paid in advance. Exploring the possibility of advance payments can offer convenience and aid in personal budgeting.

Understanding Advance Payment Permissions

The ability to pay HOA fees in advance depends on rules outlined in an individual homeowners association’s governing documents. These typically include the Covenants, Conditions, and Restrictions (CC&Rs) and the association’s bylaws. Homeowners should consult these materials to determine if provisions for prepayment exist and any limits on how far in advance payments can be made. State laws can also establish guidelines or restrictions on HOA operations.

HOA governing documents outline the framework for the association and establish the legal authority for the HOA to enforce rules and manage community finances. Any prepayment policies must align with these documents and applicable laws, which typically take precedence.

Processing Advance Payments

Once an HOA’s governing documents confirm that advance payments are allowed, the practical steps for processing these funds come into focus. Homeowners typically initiate an advance payment by contacting the HOA management or treasurer to confirm accepted methods and procedures. Payment options often include online portals, automatic bank drafts (ACH transfers), or mailing checks. Online payment systems offer convenience, allowing homeowners to make one-time payments or schedule recurring transfers from their bank accounts or credit cards.

From the HOA’s perspective, these advance payments are typically recorded and applied to the homeowner’s account as “prepaid assessments.” When using accrual accounting, prepaid assessments are recognized as a liability on the HOA’s balance sheet until the period for which the payment applies arrives. Each month, the portion of the prepaid amount corresponding to the current assessment is then moved from the prepaid liability account to cover the monthly charge. This ensures that the HOA’s financial statements accurately reflect when the revenue is earned, not just when the cash is received.

Financial Implications of Advance Payments

Paying HOA fees in advance carries several financial implications for homeowners, particularly concerning changes in property ownership or assessment amounts. When a property is sold, prepaid HOA fees are typically handled through a proration process at closing. This means the seller is reimbursed for the portion of the fees that extends beyond the closing date, with the buyer assuming responsibility from that point forward. The exact calculation involves determining a daily rate for the HOA fees and then prorating the amount based on the number of days each party owns the property within the billing period.

Fee changes after an advance payment has been made also require adjustments. HOAs can raise or, less commonly, decrease fees annually based on budget projections and operational needs. If fees increase after a homeowner has prepaid, the homeowner would typically need to pay the difference for the remaining prepaid period. Conversely, if fees decrease, the homeowner might receive a credit on their account or a prorated refund. In cases of HOA management changes, existing prepaid funds are generally transferred or accounted for by the new management company to ensure continuity of service and proper financial record-keeping for the homeowner.