Virginia HOA Usury Limits??

[PattyM]

My Home Owner's Association is charging excessive interest (18%/annual) on delinquent assessments. The Property Owners and Condomenium Owners Association Acts both refer to "Legal Rate" of interest in this situation. The Statute on Legal Rate of interest (6.1-330.53) is 6%, with some exceptions. After looking up the exceptions, I don't see anything that would qualify HOA's for higher rates. Even if they can somehow argue qualification for Contract Rate (6.1-330.55), that's still only 12%. All other exceptions fall under Industrial Banking Statutes.

How to I get this corrected and bring enough attention to the resolution so that all other Virginia HOA members can benefit from an unambiguous decision. I'm contemplating a Class Action suit (there are nearly 6000 members of my HOA), but I haven't got a clue how to get started or where to find a law firm that specializes in this sort of thing...

 

[dee_dub]

What section in the POA Act limits the interest rate on delinquent accounts to the legal rate?

55-516(F) refers to the interest the HOA can recover if they successfully sue to enforce a lien. It does not specify the interest rate the HOA can charge on delinquent accounts.

 

[PattyM]

I see the distinction. This makes it a two part issue, then:

1) The excessive rates charged for delinquncies according to the Association By-Laws, which only seems regulated by the Money and Interest statutes; and

2) Upholding rates specified by the By-Laws upon judgment, as "lawfully charged on a contract".

So it seems to me, that the first corrective step would be to ammend the contract. Unfortunately, the attorney for the Association believes the established rate is somehow legal based on various Banking and Payday Lending statutes. I haven't found anything to suggest that Association dues fit those criteria, as they are not a loan or line of credit and the Association is not a licensed lending institution. I would classify them more as reoccurring fees for reoccurring services.

The question then, in my mind, is how to go about attracting enough attention to get a definitive Decision to unambiguously esablish the maximum legal interest rate that an Association and charge, and therefore a judgment can enforce.

 

[dee_dub]

You are assuming there is something that needs to be corrected. 18% is not an unheard of rate to charge delinquent accounts.

The thing is, the other side doesn't really need to show that the rate is legal. You need to show that it's illegal. So what do the Money and Interest Statutes say?

If they don't set a maximum, then the organization and you are free to agree (as you probably did agree when you joined the HOA) on any interest rate you wish.

 

[PattyM]

The Money and Interest Statutes (referenced above) set the Legal rate of interest at 6% when there is no express contract. So we skip to Contracts for more than the legal rate of interest and find that 12% is the limit, except for certain "statutes which permit payment of interest greater than 12%..." The exceptions refer to banks, savings institutions, stockbrokers, private colleges and universities, pension plans, industrial loan associations, deeds of trust, mortgages, insurance, investment trusts, joint ventures, closed-end installment credit plans, consumer finance companies, payday lenders, premium finance companies, and origination fees payable under third-party taxpayer agreements. I don't believe HOAs qualify under any of those.

Interestingly, in 1997 when I moved in the interest rate was 10%. I didn't care at the time, because it seemed reasonable and it didn't affect me anyway. Now, however, after experiencing a financial setback, it has affected me. I subsequently learned that the By-Laws were ammended in 2003, raising the interest rate to 18%.