The danger of low income owners
Homeowner associations foreclose on residents
Associated Press
By Tamara Lush,
7/9/2011
The Inlet House condo complex in Fort Pierce, Fla., was once the kind
of place the 55-and-older set aspired to. It was affordable. The pool
and clubhouse were tidy, the lawns freshly snipped. Residents,
push-carts in tow, walked to the beach, the bank, the beauty parlor,
the cinema and the supermarket. In post-crash America, this was a
dreamy little spot. Especially on a fixed income.
But that was Inlet House before the rats started chewing through the
toilet seats in vacant units and sewage started seeping from the
ceiling. Before condos that were worth $79,000 four years ago sold for
as little as $3,000. And before the homeowners' association levied
$6,000 assessments on everyone — and then foreclosed on seniors who
couldn't pay the association bill, even if they didn't owe the bank a
dime.
Normally, it's the bankers who go after delinquent homeowners. But in
communities governed by the mighty homeowners' association, as the sour
economy leaves more people unable to pay their fees, it's neighbor vs.
neighbor.
"What the board is doing is trying to foreclose on people to force
people out the door," says Mike Silvestri, 75, who stopped paying his
dues at Inlet House in protest over what he considers unnecessary and
unaffordable assessments.
He and others say there were cheaper ways to deal with the rat
infestation and leaky sewage that led the board to order up a costly
plumbing overhaul. "They are bamboozling old people. I'm old, but I'm
not senile," he says.
In exchange for adhering to the rules, homeowners got safe communities
with clubhouses, pools and tennis courts. But what many didn't realize
when they bought their homes was that the fine print gave the
association the right to foreclose — even over a few hundred dollars in
unpaid dues.
All the association board has to do is alert its attorney to place a
lien on the property to start the process. The home can then be
auctioned by the board until the bank eventually takes ownership.
Homeowners typically have no right to a hearing.
In the past, housing associations have gained infamy for dictating
everything from the weight of your dog (one mandated a diet for a
hound) to whether you can kiss in your driveway (not if you don't want
a fine in one). Homeowners' associations have served as the behavior
police, banning lemonade stands, solar panels and hanging out in the
garage. One ordered a war hero to take down his flag because of a
"non-conforming" pole. Another demanded that residents with brown spots
on their lawns dye their grass green.
Now, past the faux regal gates, beyond the clubhouses, many property
owners in associations owe more than their homes are worth. Some are
struggling to pay their bills after they lose a job. Others have had
their pay cut. So they've stopped paying their association dues.
To combat the rise in delinquencies, boards are switching off
utilities, garnishing income and axing cable. They are yanking pool
passes and banning the billiard room. And, in the most extreme cases,
they are foreclosing.
"The treacherous part is that homeowners' associations are acting like
a local government without restraints, and they have this extraordinary
power," says Marjorie Murray, a lawyer and founder of the Center for
California Homeowner Association Law.
Today, one in five U.S. homeowners is subject to the will of the
homeowners' association, whose boards oversee 24.4 million homes. More
than 80% of newly constructed homes in the U.S are in association
communities.
And of the nation's 300,000 homeowners' associations, more than 50% now
face "serious financial problems," according to a September survey by
the Community Association Institute. An October survey found that 65%
of homeowners' associations have delinquency rates higher than 5%, up
from 19% of associations in 2005.
Associations set rules for their communities. They levy monthly dues,
typically between $200 and $500, and cover the costs of services that a
municipal government usually takes care of: road repair, streetlights,
sewage systems. If an association's budget is strained or major repairs
need to be done, the board can levy a "special assessment" on top of
those dues. And when one homeowner doesn't pay those fees, all the
other homeowners have to pick up the cost.
The rise in delinquencies comes as banks are taking over foreclosed
homes and then leaving them vacant more often than ever. Taken
together, these shortfalls are resulting in higher fees for all of the
other homeowners — and massive financial angst for association boards.
Before now, associations rarely, if ever, foreclosed on homeowners. But
today, encouraged by a new industry of lawyers and consultants, boards
are increasingly foreclosing on people 60 days past due on association
fees, says Evan McKenzie, a former homeowner association attorney who
is now a University of Illinois political science professor and the
author of the book "Beyond Privatopia: Rethinking Residential Private
Government."
The government does not keep statistics on how often homeowners'
associations initiate foreclosures. But a non-profit research group
found that association-initiated foreclosures in the Houston area
jumped from 500 in 1995 to 2,200 in 2007. Most association-related
foreclosures in Texas do not go through the judicial process, so the
group's analysis represented only a fraction of the foreclosures that
housing associations have initiated.
The problems in some communities are resulting in more scrutiny. In
Nevada, the FBI is investigating corruption in elections of association
boards. In Utah and Arizona, legislators are trying to pass bills that
would root out the use of debt-collectors who are alleged to have used
thug-like tactics to strongarm residents into paying fees.
State legislatures in California, Arizona, North Carolina, Texas and
Florida have taken up legislation that would clamp down on foreclosures.
Not everyone thinks the tactics are out of line, though.
"When people are not paying their assessments, they're not
shortchanging some giant multinational corporation. They are taking
money directly out of the pockets of their neighbors," says Andrew
Fortin, head of government affairs for the trade group the Community
Associations Institute.
So the neighborhood feuds are escalating. At Inlet House, one resident
claims her fellow senior citizens have turned into vigilantes,
vandalizing her car in retaliation for not paying her dues.
In all, 17 of the 60 units are in various stages of delinquency. Paul
Gray, a fastidious budgeter, paid off his mortgage long ago and paid
all but $2,500 of the Inlet House assessment. The association initiated
foreclosure proceedings. A few days after he received the foreclosure
notice, Gray suffered another stroke, three friends say. Now he is in a
nursing home. He has since paid off the $2,500. His home, worth $89,000
in 2006, is for sale for $18,500.
In the meantime, the board, facing $172,000 in costs from non-payers,
has had no choice but to raise dues by an extra $50 a month to an
average of $375. Between the assessment and increased dues, some
residents complain that they pay more than they would to rent a plush
oceanfront spread down the street at the posh Fontainebleau condo
complex.
Association manager Janice Stinnett, who is also an Inlet House
resident, says she isn't to blame, the non-payers are.
"It's unfair that everyone is paying extra to cover these deadbeats,"
she says.
The board is continuing to make the plumbing repairs that made the
assessments necessary to begin with. It will soon issue another special
assessment to cover the costs.
To homeowners who opposed the repairs on the grounds that they were too
expensive, the entire picture adds up to a crime. Says Silvestri, "What
these associations are doing is illegal. It's a fraud."
Benefits of Community Associations Part 1: Are HOAs really as bad as some portray?
Tarley Robinson, PLC
26 July 2011
As more owners stop paying their dues, the costs multiply for everyone.
The association then has the unsavory choice of raising dues for the
people who do pay or taking action to collect from the people who don’t.
The current mortgage foreclosure crisis has aggravated this situation.
In a survey of 1,500 community managers, only 19% reported that the
rate of assessment delinquency in 2005 (before the foreclosure crisis)
was higher than five percent. Now, 65% of the responding community
managers reported delinquency rates above five percent. That increase
in delinquency translates, in many cases, into higher dues and
assessments for those who are paying, as associations attempt to
compensate for the lost revenue.