How Much Interest Can an HOA Charge in Georgia?

Two recent Georgia Court of Appeals cases address the issue of allowable interest on past-due assessments charged by homeowners associations (HOA). What rate of interest is an HOA allowed to charge in Georgia?

Northside Bank v. Mountainbrook of Barstow County Homeowners Assn.

In Northside Bank v. Mountainbrook of Barstow County Homeowners Assn., 338 Ga. App. 126, 789 SE2d 378 (2016), a bank foreclosed on six lots in Mountainbrook subdivision, but failed to pay the association HOA assessments on those lots for several years. The association sued the bank to take back the lots pursuant to lien rights, and to collect the unpaid assessments along with interest and other charges. The trial court granted summary judgment to the association, awarding interest at 18 percent, and the bank appealed.

On appeal, the bank argued that the association could not charge 18 percent interest on the unpaid assessments. The Declaration of Covenants did not specify an interest rate, but stated that the interest would be "the maximum legal rate per annum." The association used 18 percent, which is the maximum amount allowed on commercial accounts in Georgia.

The Court of Appeals disagreed with this approach. The Court noted that in cases where the principal debt owed is $3,000 or more, the parties may agree in writing on any interest rate, expressed in simple interest terms. The Court continued to explain, however, that an interest rate expressed as the "maximum legal rate per annum" was vague, and not definite and readily ascertainable. Under such circumstances, the interest rate must be calculated in accordance with OCGA §7-4-2(a)(1)(A), which provides for seven percent.

Accordingly, the Court reversed the trial court's award of 18 percent interest and remanded the case to the trial court for calculation of interest at seven percent. The Court ruled that this statute, rather than the one relied upon by the HOA, controlled because the HOA declaration was not a commercial account. OCGA §7-4-2(a)(1)(A) governs interest rates in contracts in which the interest rate is not specified.

Lend A Hand Charity, Inc. v. Ford Plantation Club, Inc.

A few months after the Northside case, the Court of Appeals ruled on Lend a Hand Charity, Inc., v. Ford Plantation Club, Inc. The Court stated that an HOA's right to collect past-due interest on assessments is governed by the declaration of covenants, conditions, restrictions, and easements for a subdivision. So long as a grantee (such as a homeowner) of property subject to an HOA has notice of the declaration, and the covenant concerns the land or its use, the covenant can be enforced against them.

As in Northside, the declaration provided for interest to be collected at the "maximum legal rate." In light of the holding in Northside, the Court rejected the HOA's argument that the HOA was entitled to 18 percent interest under OCGA §7-4-16, which governs commercial accounts, and remanded the case for calculation of interest at seven percent.

What this Means for Georgia Homeowners and Others Subject to an HOA

The take-aways from these cases are that although HOAs are permitted to establish interest rates for past-due assessments in a declaration of covenants, and grantees are bound by these rates, the rates must be definite or readily set and calculable. Otherwise, such interest at "the maximum rate permitted by law" will be capped at seven percent under Georgia law.

Do you know what your covenants with your HOA require in terms of interest on past-due assessments? Contact an experienced Georgia HOA attorney who can help you understand your obligations and understand the particulars of your case.