Homes Association Perils for Buyers
By Linda Manley
Community associations or homeowners associations (HOA) were once welcomed as convenient providers of amenities and overseers of neighborhood ambience. Although the great majority still serve these functions, some HOAs are feeling the pinch of the epidemic of bankruptcies and foreclosures. When 30 to 50% or more of owners are in arrears in dues payments, the responsibility falls on the remaining members to make up the difference. In extreme cases, only a quarter of the residents might be footing the bill for the entire community.
In such unusual cases, most of the properties are unoccupied. Sometimes the properties were never sold, as the market crashed before the developers were able to sell all the units. Sometimes the units were now worth only half of what the buyers paid, and they just walked away from the money pit. In other cases, owners lost their jobs, went bankrupt, and, with nothing to lose, stopped paying dues. Others sub-let or rented their units, but didn’t forward any of the rent money for association dues.
As reported in the St. Petersburg Times, one development group dumped the responsibility for the upkeep onto the board of the association, none of whom had any background in the legal responsibilities of a condo board or the maintenance required by the complex. When the board examined the budget, they found just $162 in reserves, with expected expenses for the year of over $182,000.
Only 12 of the 96 owners were still paying dues and maintenance fees. The major overall insurance policy was in arrears and there was no money for upkeep such as painting, roofing, pool repair or upkeep, and similar needs. The board planned a special assessment to cover emergency costs. In other associations, cable, water, garbage pickup, and other services are covered by the association. Delinquent dues can immediately affect such basic services.
Recent court decisions in specific counties in Florida will provide some assistance to HOAs there. The decisions allow for blanket receivership in the event of massive foreclosures in an association. The Palm Beach Post reported another decision allows independent companies to collect the rent for subleased units from the tenants, ensuring payment of the association dues before monies are released to the unit owner.
Although some homeowners owe nearly three years in back dues, Florida state law requires foreclosing institutions to pay only six months worth of overdue fees. That leaves associations on the hook for thousands of dollars worth of delinquent dues. The Herald Tribune of Sarasota reported proposals are pending in the state legislature that would require lenders to pay more of the fees, but passage is uncertain and will take months, if not years, to go into effect.
Although Florida is likely the state hit hardest by such devastating circumstances, more than ever, those who wish to move to a warmer climate must perform due diligence before purchasing a home or condo unit with an HOA. Talk to neighbors and see if you can find out who is on the association board. Then, talk to board members. Yes, that takes a long time and it might be a lot of hassle. However, it’s much less painful than finding out two months into your new home that the homes association is broke.