D.M. from Hartford County, Connecticut writes:
Dear Mister Condo,
Must an HOA (PUD) pay interest, for monies held, to any homeowner who prepays HOA fees for the entire year?
Mister Condo replies:
D.M., I can honestly say I have never heard of an HOA paying interest to a homeowner for prepaid dues. There is no requirement for a homeowner to prepay so they really shouldn’t be expecting a “return” for prepaying their dues. It is not an investment. If you prepay your taxes or your utility bill you wouldn’t expect interest on the prepayment so I see no reason for interest to be paid on prepaid HOA fees. It is simply a convenience for the homeowner, not an investment. Prepayment of fees is simply offered as a convenience for the homeowner. All the best!
I have never heard of this either but the idea intrigues me. We are about to face a cash flow crisis and prepaid assessments may be a unique and innovative way to keep the money flowing. I first heard about this when I was doing a Webinar with the CEO of a management company who put the word out to owners that prepaid assessments would go a long way to helping the association. The interest rate could be around 3% (better than any bank) and if it is properly reviewed by legal and approved could be a great solution to cash flow issues.
We had a cash flow problem once and simply asked owners for help by prepaying fees. Many were happy to help. This got us out of a temporary problem.
If the association wanted to substitute a loan with prepaid fees, a rate near the loan rate might be appropriate …. 3% range.
If the association were simply awarding the owners for prepayments a rate nearer to what owners can get in their savings or CD accounts might be appropriate … near 0.3 % range.