Can You Refuse Paying HOA Dues Left Unpaid by the Previous Owner?

“A person’s enjoyment of ownership may be restricted and limited if to do so the welfare of the community is promoted and attained.”

Mr. Justice Gutierrez, Jr., Bel Air Village Association, Inc. V. Dionisio, 174 SCRA 589

By Realttorney

After buying a house and lot inside a subdivision, can the Homeowners’ Association (HOA) mandate the payment of all monthly dues unpaid by the previous owner to the new owner?

Candy P (not her real name) is a novice real estate investor. She purchased a foreclosed property from the Home Development Mutual Fund (popularly known as PAG-IBIG). She reached out to me to inquire on the legality of the HOA requiring her to settle all the unpaid HOA dues for the property she acquired through public auction.

As a real estate lawyer, I always advocated, as part of a real estate investor’s legal due diligence, to check or verify from the HOA if there are outstanding and unpaid monthly dues by the owner selling the property. This rule also applies when the investor seeks to purchase a property that has been foreclosed by a financial institution or a bank.

The result of the due diligence will determine if the investor will ask for a discount on the selling price in order to account for the extra expense, if and when payment of the arrears will be mandated by the HOA. By experience, real estate investors will negotiate with the HOAs for the condonation of a portion of the unpaid dues, including the interests and/or surcharges added to the unpaid dues.

However, it seems that Candy P is dealing with a HOA that plays hardball; a HOA that does not believe in coming up with a WIN-WIN solution to the problem left by the previous owner. She is being forced to pay the arrears amounting to P252,000 with penalties. Like all budget conscious real estate investors, she is resisting this and searching for a Department of Human Settlement and Urban Development (DHSUD) guideline or any law that she can point out to legally oppose the dictates of the HOA.

Before we answer her question, let us first discuss the legal basis of how and why HOAs compel the payment of unpaid dues, fees and assessment by the current owner, as well as the new owner.

Section 5 of Republic Act No. 9904 states: “Every homeowner has the right to enjoy the basic community services and facilities: Provided, That he/she pays the necessary fees and other pertinent charges.”

To emphasize the necessity of the homeowner to pay “the necessary fees and other pertinent charges,” the Magna Carta for Homeowners and Homeowners’ Association provided under Section 8, that a member shall have the duty “to pay membership fees, dues and special assessments.”

Therefore, if the homeowner-member wishes to enjoy the basic community services and facilities of the HOA then the member is obliged to pay the monthly dues imposed by the Board of Directors/Trustees of the HOA, in accordance with its Bylaws.

By virtue of Section 10 of Rep. Act No. 9904, the HOA has the power to “impose or collect reasonable fees for the use of open spaces, facilities, and services of the association to defray necessary operational expenses, subject to the limitations and conditions imposed under the law, the regulations of the board and the association’s bylaws” as well as, to “suspend privileges of and services to and/or impose sanctions upon its members for violations and/or noncompliance with the association’s bylaws, and rules and regulations.”

Meanwhile, it is the duty and responsibility of the Board of Directors or Trustees to “discharge the duties and responsibilities provided for in the association’s bylaws.” Take note of the words “association’s ByLaws” which is key to understanding the next part of this article.

Unless otherwise provided in the Contract to Sell, Deed of Sale, or other instruments of conveyance, or annotated in the title of the property, membership in the association is optional. Moreover, it should be emphasized that “no lot owner/purchaser may be compelled to join a HOA. Compelling a homeowner to join the HOA is a prohibited act under Section 22 of Rep. Act No. 9904.

But, most HOAs that were formed in the last 25 years have made it a requirement for all buyers in the subdivision project become automatic members of association by stipulating it in the Contract to Sell, Deed of Sale or the Deed Restrictions which are annotated on the land title of the individual lots.

Therefore, a purchaser of registered land is bound by the annotations found at the back of the certificate of title covering the subject parcel of land.[1] Hence, when a purchaser voluntarily buys a registered land, it is understood that he/she took the same free of all encumbrances except notations at the back of the certificate of title, among them, that he/she automatically becomes a member of the HOA.[2]

To repeat, it is the duty of the homeowner-member to pay the monthly dues for the operation and activities of the HOA, which is collected by the Board of Directors or Trustees. In general, the dues collected are intended for garbage collection, salary of security guards, cleaning and maintenance of streets, street lights, parks, playgrounds and other open spaces for the benefit of all the homeowner-members of the HOA. These expenses are necessary, valid and reasonable for the particular gated community.

The amount to be paid by each lot owner is computed on the basis of the area per square meter of the lot owned by every member. The monthly dues are the share in the common expenses for necessary services. This is now made clear by Section 8 of HLURB Resolution No. 1, Series of 2017, entitled “Guidelines in the Kinds of Dues, Fees and Contributions That May Be Collected by Homeowners Association” approved on March 8, 2017.

Again, it bears repeating that the amount of monthly dues to be imposed by the HOA should be based on the existing ByLaws of the HOA. Furthermore, under the ByLaws of older HOAs, the non-payment of the monthly dues constitutes a lien on the lots of the owners in the subdivision project. If this is the case, then it should be understood that the lien is not imposed on the person of the lot owner (homeowner-member) but follows the parcel of land whoever is the owner.

So, it is quite clear that the basis of HOAs in demanding the payment of the arrears in the monthly dues by the new owner is contained in the existing provisions of the HOA ByLaws. Even the imposition of interest and surcharges on top of the unpaid monthly dues should also be indicated in the HOA ByLaws.

Consequently, if the HOA ByLaws does not provide for the amount of the monthly dues as well as the imposition of interest, surcharge, and the creation of a lien for unpaid monthly dues then any collection of monthly dues and the arrears is without basis in fact and law.

Hence, Candy P should review the existing ByLaws of the HOA in order to determine if the HOA has legal basis in demanding she pays the arrears of P252,000 left unpaid by the previous owner. This may seem unfair but there have been cases decided by the Supreme Court that upheld this legal principle, pursuant to the existing provisions of the HOA ByLaws.

Finally, the biggest weapon Candy P could have used to resist paying the unpaid monthly dues of the previous owner of the real property she purchased at public auction is DHSUD Department Order No. 2021-007, Series of 2021 signed by Sec. Eduardo Del Rosario last September 15, 2021. This is the “2021 Revised Implementing Rules and Regulations of Republic Act No. 9904, Otherwise Known as the Magna Carta for Homeowners and Homeowners Associations.”

We quote herein Section 99(o) of DO Order No. 2021-007, Series of 2021, to wit:

Section 99. Prohibited Acts. It shall be prohibited for any person or association:

x       x       x

o.   To require a buyer prior to purchasing a property within the subdivision/village, or a subsequent homeowner to pay the dues and other charges left unpaid by the former homeowner/member unless there is a written agreement for the purpose between the former homeowner and buyer/new homeowner exists;”

Because of this current prohibition, HOAs can no longer require a prospective buyer or a subsequent homeowner to pay the dues and other charges left unpaid by the previous property owner or homeowner-member unless there is a written agreement that deals with who is to pay the arrears in the dues.

However, there another colatilla for a prospective buyer to be covered by this prohibited act and that is the written agreement for paying the unpaid dues and other charges between the former owner and the prospective buyer should have been executed prior to purchasing the property within the subdivision project.

As applied to the case of Candy P, it seem that she cannot invoke this provision of the new IRR for Rep. Act No. 9904 since she already purchased the house and lot in the subdivision project without reaching an agreement with the former owner. But, in this case, the former owner is the PAG-IBIG FUND who refused to pay the outstanding arrears of the previous homeowner-member.

To recap, what is the action of Candy P moving forward. First, she should review the existing HOA ByLaws to determine if the monthly dues collected and the interest and other charges were legally issued pursuant to the rules and regulation indicated in the ByLaws. If the imposition of the monthly dues were not made in accordance with the provisions of the existing HOA ByLaws then she could definitely oppose the payment by her of the arrears in the HOA monthly dues.

Second, she should read the ByLaws to check if the non-payment of the monthly dues constitutes a lien on the lot of the property owner. Absent this important provision in the existing ByLaws, she could also legally refuse to accept the demand of the HOA to pay the unpaid HOA dues of the previous owner.

Of course, this dispute will not end quickly until the HOA embraces the opportunity to settle the matter amicably. The worst case scenario for Candy P is for to litigate this issue at the Human Settlement Adjudication Commission of DHSUD. And, understandably, real estate investors are allergic to litigation due to the additional unplanned expenses this entails.

We hope that the HOA will seek a WIN-WIN solution to this dispute. It is the best case scenario for both parties concerned.

[1]Tanchoco vs. Aquino, 154 SCRA 1 [1987].

[2]Bel Air Village Association, Inc. V. Dionisio, G.R. No. L-38354, June 30, 1989.

Published by Atty. Jojo

A loving husband and devoted father; a gentleman farmer; a licensed real estate broker; a real estate & estate planning attorney; and a practicing Catholic.

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