Is a payment contract invalid if one party doesn't attempt to collect payment from other parties?

Question

I live in a neighborhood with an HOA. Everyone had to sign a contract with them to buy a house here (the company that built the houses owns the HOA). I recently found out, that for the past 10 years, about half of the neighborhood hasn't paid any HOA fees at all. Most of them have never even been contacted by the HOA, and the HOA does literally nothing for our neighborhood.

When questioned they actually told us that the fees we pay them, are to process the checks we give them.

I know very little about Alabama laws, but I thought I had heard something at one point about if an entity doesn't honor their contracts (by collecting payments), then other parties can consider those same contracts invalid. Is that correct?

Answer 1

It is very unlikely that members of the HOA can consider the contracts invalid because other parties aren't paying their HOA dues. HOA dues are more like taxes than they are like contracts. They are probably mandated by the Declarations filed against the property that created the HOA in the first place.

The HOA probably has the right to collect back HOA dues to the extent that the statute of limitations on the dues hasn't expired. Assessment liens in at least some associations need to be filed within a year of when they are due, and can be enforced by a lien foreclosure up to three years after they are due. It may be possible for the Association to simply sue the owner of the property at the time the assessments became due for up to four years. But, fellow owners almost surely don't have that right, and even if you got control of the HOA a few months from now, at least half of the uncollected dues would be more or less permanently lost.

There are limitations on what an HOA can do with the money that it does collect, and there are limitations on the rights that a developer like the one apparently running your HOA can retain in managing an HOA in terms of duration and in terms of percentage of units sold. It is very unusual for a developer to stay in control for ten years, unless a large share of the units in the Association remain unsold. Usually, control of the HOA has to be turned over from the developer to the owners of the HOA at some point.

If the developer misappropriates the funds you could probably sue the developer for that (individually or as a class of homeowners who have paid) and it would not be unthinkable, although it would be much more difficult, that you might be able to sue the developer for failing to take reasonable action to collect dues on behalf of the HOA. Either kind of lawsuit against the developer would have a statute of limitations attached, however, and would probably not go back ten years. The developer could argue as a defense to a lawsuit for not collecting dues that it wasn't cost effective to sue to collect them.

Realistically, any losses more than four years old due to non-collection of dues are probably lost forever, and it would also be very hard to recover excessive compensation that the developer paid to manage the HOA.