Interesting article on HOA foreclosures

Our HOA regularly files foreclosure lawsuits against those who cannot pay. In the end, the homeowners find the money to pay before the house goes to a sheriff sale. We have moved forward with foreclosure lawsuits probably 5 times in the last 2.5 years that I have been on the Board.

Ultimately, there are costs of homeownership. These include: ongoing home maintenance, taxes, utilities, and HOA dues. If a person chooses not to pay any of the previously listed costs, there are consequences. In the case of home maintenance, deferring it means one lives in a rundown house. In the case of taxes, the government takes title to the property and sells it for you. In the case of HOA dues, foreclosure lawsuits are filed.

Our HOA sends out many letters and offers payment plans prior to filing a foreclosure lawsuit. Most often, homeowners in financial difficulties ignore these letters rather than reaching out to us, which is unfortuante.

I feel really bad when I see the attorney fees pile up (these are charged to the homeowner) once we get legal involved. Had the homeowner simply reached out to us and arranged a payment plan, we could have helped them a lot.

But homeowner association dues are required, and ultimately, if one cannot afford to pay them, they cannot afford to live in our community.

I contribute to ProPublica, as it has a lot of excellent investigation journalism (something most outlets don’t do anymore) and I thought this story was as balanced as they could make it. For me, it highlighted several things that influenced my thinking when I served as my board treasurer for five years:

1. Homeowners need to be educated – often – on why assessments are important. They are just as important as paying the mortgage, property taxes, utility bills, etc. If you don’t pay those legal obligations, you risk a lot of drama which could result in a lien being placed on your home, your utilities cut off, etc.

2. They should also be educated on the budget and how delinquencies affect the association’s ability to provide services. In my community, I heard a lot of “I don’t see where my money’s going – there’s trash everywhere!” Yes, but the board isn’t running around throwing illegal trash in the dumpster that the association has to pay someone to remove it! People also forget inflation – I paid $95 a month when I moved to my townhouse 20 years ago and now it’s over $150. Everything else has also gone up (I got my property tax bill last week and DAMN!)

3. Boards need to be fair and consistent in pursuing delinquencies, but not every delinquency is caused by a deadbeat, and they need to take the time to figure out the difference. That’s when communication is so important – we send out our collection policy with the upcoming year’s budget and it strongly encourages people to contact the property manager if they have financial stress. When people come to you, listen to them – it’s ok to require they submit written, verifiable proof of hardship to our attorney. In our case, we didn’t put people’s business in the street and I remember working with some people for two or three years to get their accounts up to date.

4. The dribs and drabs doesn’t work. If everyone else is paying, say $150 a month, and you chime in with $25, that’s not doing anything for your debt. We can’t fix a roof for $25. There were some people who would propose that and yet I saw newer cars parked in front of their homes, so priorities may have been a problem with some people. There used to be consumer credit counseling services that helped people negotiate payment plans with their creditors – I would send people to those agencies and if THEY said $25 was the best the homeowner could do, we could negotiate from that.

5. Foreclosure was always our last resort because we usually didn’t get anything anyway. The goal was to get out the deadbeat – why should someone stay in the community and get services and then jump around trying not to pay for whatever reason? The house may as well be vacant – not a great option either, but if we aren’t getting any money anyway, I’d rather use the money we are getting to serve the people who are actually paying.

Bottom line, there’s plenty to be said on both sides, and while I understand why people are going to the legislature, the legislature had better remember Surfside and actually do some critical thinking for a change to find a balance in this issue.

It's a few thousand. Yes, it is charged to the homeowner. Usually we send them to the attorneys when they owe about $1000 and they usually write a check to the tune of about $6500 or so if they wait until last minute to pay us. Allowing their account to go to legal is the worst possible thing for a homeowner in tough financial times.

I read the article.
Thought it was interesting.

Problem is, many homeowners don't consider hoa/coa assessments a major debt that should be paid.

When I was treasurer, we had one homeowner who wouldn't pay assessments until we started legal action against them. Due to legal fees, it cost them more then it would have had they paid the assessments on time. Due to some legal fees that we could not charge to the member, the Association always lost money in the collection effort (yes, even with late fees attached). Not to mention the additional time all of this took. Fortunately we were self managed. An Association with a management company might have had to pay for that additional time.

Most Associations have a very tight budget and can only absorb so much loss.
Thankfully, we only had one member that did that. Had we had more, the Association might have struggled to meet all of it's obligations.

In the situation I described above, I lobbied for foreclosure (stop the bleeding and take our chances with the next owner).
The board was all for it until a name was attached to the proposal, then they didn't want to foreclose on someone they knew.

I've been off the Board for a few months but I assume a guy who's been delinquent for several years still is. He is a master at everything being postponed with his "new" payment plans. We had a prez one of those years who owned next door to him and felt sorry for him, etc., which delayed action. We did start foreclosure proceedings on him last fall. Our collection attorneys have looked into his finances and it does seem like he has a healthy equity unless he has a lot of unrecorded loans. With such a red hot market here, I'm surprised he isn't selling.

Playing devil's advocate some more....

One, I think the authors of the article are mis-identifying the problem. The real issue is homeowners not paying assessments, for whatever reason, and the HOA's limited options for dealing with this. The bills won't go away, many are not optional, and the board is obligated to take lawful and appropriate steps to deal with the shortfall in income. (My bylaws list foreclosing as one of the duties of the board, and it's one of those "must" duties, not "may". And we can foreclose for unpaid fines and other non-assessment charges.)

I also think some of the homeowners in the article are the authors of their own misfortune, to some extent.

Example 1:

"Kunic and her husband were served with a foreclosure lawsuit from the HOA in 2018, 12 years after she purchased their townhouse. Kunic doesn’t know many of the details of what happened because she said her husband, who died in 2020, handled the situation. But she said he had to borrow roughly $10,000 to pay off the HOA and keep their house.

Kunic, 49, said she didn’t know until she was contacted by Rocky Mountain PBS and ProPublica that her home came within three days of being auctioned off at a sheriff’s sale. She also didn’t realize how much of the payment her husband made had gone to paying the HOA’s legal fees."

My comment: You'd think she'd show a little more interest in the details since later on she's quoted as worrying about not being able to afford housing. This level of disengagement is the sort of thing that can lead to missed or late payments, ignored notices from the HOA, and the like. And then we're off to the races again. Completely avoidable unless the homeowner simply doesn't have the money - and that's not a problem that an HOA can solve.

Example 2:

"The Timbers’ collection policy states that payments are due on the first day of the month, and those not paid within 30 days are subject to late fees. Month after month, Edward James paid online through the HOA’s website and saved his receipts showing he paid within 30 days."

My comment: So he was in fact paying late - he waited until the last minute before late fees were assessed. He could so easily have decided to pay a few days earlier - still late! - and have avoided the whole mess. But he wanted things his way. (We had one like that. He drove his payment to the PM's office on the 7th day after it was due, which is the last day before our late charges are assessed. This worked OK unless day 7 fell on a weekend. A few times a year he was charged the late fee and was OUTRAGED every freakin' time. After about the fourth time he tried to bend my ear, I told him flat out: "You know how to fix this problem, but you won't do it. I can't help you." No sympathy here.

Further comments:

I'm not saying that the HOA and attorney in the article weren't aggressive or that they didn't make some mistakes. But if you want to fix this problem by focusing entirely on the HOA, then you're ignoring the role homeowners are playing. And when it gets right down to it, the homeowners are causing the problem by not paying. The HOA's aggressive tactics don't matter at all to the homeowners who are paying their assessments on time - in fact they benefit because they won't have to make up a shortfall that they didn't cause. ($200,000 in this case!)

So I consider the article to be unbalanced, no matter how well researched. I agree there is a problem, but you can't fix it if you ignore a good chunk of the cause. Unfortunately, that good chunk is a whole lot harder to fix than simply changing some laws to further limit HOAs' ability to collect delinquent assessments. So much easier to buy into the whole "those awful HOAs!" narrative.