Living in a HOA,your neighbours financial problems become yours

It seems there are more and more stories of defaults and bankruptcies that are impacting HOA's and therefore all members. HOA's are believed to protect home values but that is questionable in the current environment.

If you live in one, and are financially stable, you still assume the financial risks of your neighbours who may not be, and are forced to carry their burden. Now we are seeing reports such as in the story below, that buying in a HOA/Condo may actually be scaring off some buyers because they see the open ended financial liability that comes with carrying your neighbours financial burden whereas living outside a HOA your risk is yours, and your neighbours risk doesn't become yours..it may become the local taxing authorities though and therefore yours.

http://www.browardpalmbeach.com/2008-01-31/news/falling-behind/

DJ1,

That is a false assessment of living outside of an association. “IF” ,HOA, POA, COA, etc. are managed/operated properly, association living is likely to increased property values. Obviously not all, but most! The same risks are taken when you reside or purchase property outside an association. I can assure you that I and many other people, including yourself wouldn’t purchase property next to a house that didn’t have ANY curb appeal or didn’t maintain their yard, with foot high weeds surrounding their house. Would you buy a house directly adjacent to them? I would think NOT.

Although, the link you provide was very interesting/entertaining to read, I believe that is a far cry from reality, a worst case scenario, of how association living truly is. That was the worse portrayal I have ever read. YOU CAN’T REALLY BE SERIOUS, WITH YOUR ACCUSATION “IF” THEY ARE ENTIRELY BASED ON THAT ARTICLE ALONG! PLS, the article was enough.

If I had NEVER lived in an HOA/POA it may deter me from purchase however, this discussion forum is merely association members (the choices have already been made, there is no need to pursued us otherwise, we (members of the community, those with pride are changing what give association living a BAD WRAP THE BEST WAY WE CAN.

That community is 35 years old (For Gods sake) time has been known to deplete structures durability, regardless of owning property within an HOA, POA or COA, etc. Not to mention that the HO refinanced their house several times, duh, that shows that they are careless and irresponsible to say the least.

COMMON SENSE IS HIGHLY DISREGARDED WHEN FORECLOSURES ARE FREQUENTLY OCCURRING AROUND THE COUNTRY.

The increase in foreclosures has very little to do with association living although foreclosures are more frequent amongst HOA, POA, COA, etc. due to the fact that the builder is looking to sell these lots, house or units as quickly as possible, therefore many make purchases, they SIMPLE CAN’T AFFORD, PERIOD!

BTW, I’m NOT disagreeing that the housing market is probably worse NOW than EVER, however, I DON’T agree that it is difficult to purchase, NOW is the best time to purchase, NOT the time to SELL.

Chuck W.

Charles. I've seen the reports that something like 70% 'believe' HOA increase property values but that doesn't make it so but my comment had to do with a buyer's consideration of potential liabilities when considering their purchase. Defaults are rising in and out of HOA's. My neighbours default doesn't affect to the same degree me in terms of direct costs if I live outside a HOA, if I live in one, it does.

Years ago in looking at purchasing a Condo I considered how much the fees 'might' rise and decided I didn't want to have this additional unknown. I opted to purchase a single family home instead.

As for the story being a far cry from reality? Well, I'm seeing more posts here that reflect that very reality.

Of the ~114 homes I live among it is the HOA homes that remain sitting on the market after many months to some now approaching a couple years. Every non-HOA home embedded amongst the HOA has sold for similar asking prices to the HOA homes! A couple HOA homes were just taken off the market after sitting with no successful offers.

I kind of hope the 'belief' is true though because then my home surrounded by the HOA homes might fool someone into paying more should I ever decide to sell.

If only the HOA would enforce their CCR's maybe the arguments you made might apply!

CharlesW1 - Do the math. Spread the cost of 22 units' monthly maintenance in your HOA to the remaining owners. How long can they absorb the default? If nothing else, the nation's housing crisis should be an eye opener to all HOA, and COA Board members for budgeting purposes.

Some ideas here:

(1) People buy homes largely on emotion and beliefs...If they 'believe' the HOA will raise values then it becomes reality as more buyers buy HOA homes....basic supply and demand.

(2) A major section of the current market demands amenities in communities (grand entrance, pools, playgrounds, clubhouse, walking trails, etc). This applies to condos and single family homes. This is the reason developers MUST include HOAs to start with...You normally can't have these private amenities without a HOA.

(3) Nice, attractive communities raise property values...HOA or not. However, HOAs can help a community stay nice looking via covenant enforcement.

(4) Many buyers have no real idea what a HOA/POA is and don't really care to know. I don't believe many buyers make their choice based on whether there is a HOA. They simply see the community and like it or don't. They look for the amenities they want and if they want a pool, tennis, trails, private parks, etc then they make an offer on a house. They get told they have to pay $50/month for all the amenities and they think, great deal..OK.

SUMMARY:
So the HOA/POA/COA is just the legal setup that allows communities to stay 'pretty' via rules and have upscale private amenities. The 'pretty' and 'amenities' are what the buyers want and that's what raises property values, not the legal structure that enables having those items....e.g. the HOA.

Another story consistent with my assertion but which Charles believes is false.

"Association fees another casualty of meltdown

By GEORGE E. NOWACK JR.
Published on: 02/05/08
The headline in last Wednesday's Atlanta Journal-Constitution announced "Bankruptcy filings up 24 percent in Georgia." Another headline in that edition warned "Abandoned pets often victims of foreclosure."

Those stories, as well as all the stories about those affected by the subprime meltdown, have failed to mention another victim — community associations.

According to the Community Associations Institute, one in five Americans lives in a community association (condominium, subdivision or co-op). Locally, upwards of 90 percent of new construction is either a condominium or a subdivision.

Community associations are created by filing written covenants, generally called a declaration, in the county land records. The covenants make the property owners mandatory members of the association, obligated to pay assessments/dues.

Assessments/dues are like taxes, providing the income to allow an association to perform its duties. The amount depends on the level of services provided by an association. The level of services is established by the covenants. Typically, condominium fees are significantly higher than subdivision fees because most condominium associations maintain the exterior of the units and many include certain utilities like water and cable television.

Subdivision fees depend on the extensiveness of the amenities. The bigger the pool, the more tennis courts, the larger the fee. Many people treat assessments/dues as an expense that is almost voluntary. It gets paid in good times and is one of the first bills that is ignored in bad times.

Foreclosures have a devastating impact on community associations that is not felt by other creditors. A foreclosure wipes out the assessments/dues owed on the property. A foreclosure does not have that effect on credit cards, auto loans and other consumer finance products — those debts remain intact.

Bankruptcies, however, affect associations the same as other creditors. If liens are in place, an association is a secured creditor and will be repaid as a creditor in a Chapter 13 filing with all the other creditors — up to five years.

Rising bankruptcies, foreclosures and unemployment have formed a perfect storm that is going to hit community associations. Rather than wind and water damage, owners will be hit by a cut in maintenance and services — landscaping, paint, roofs, lighting, concierges, parking attendants, tennis instructors, on-site staff and swimming pools, if they can be filled. That will result in a further decline in resale prices as purchasers shy away from associations that have lost their curb appeal. It will also result in a loss of business for vendors that provide services to community associations.

As the number of families experiencing financial difficulties increases, so do the number of delinquencies in community associations. Unlike other debts, the collection of delinquent assessments/dues becomes personal due to the impact of one neighbor's payments on another neighbor. Despite that personal relationship, a board of directors must treat the delinquency as a debt. Failure to do so will, sooner or later, result in a decrease of maintenance and services and/or the need for a special assessment. It will be sooner if a board of directors fails to implement collection policies to ride out the storm.

A board of directors should use its newsletter, e-mail, etc., to remind owners of the importance of paying assessments on time and stress the consequences that delinquent accounts have on every owner. If an owner is unable or unwilling to pay, then a board must become a debt collector. A board, or its management company, should send a reminder notice when a payment is five days past due, and then a demand letter to every delinquent owner that is more than 30 days past due. Follow-up letters and phone calls should be attempted to encourage payment. If a payment is more than 60 days past due, collection action should be commenced.

In addition, to the extent authorized by the covenants, boards should:

• File liens or notice of liens when a payment is 30 days past due.

• Suspend access to amenities.

• Suspend parking privileges.

Those actions may be viewed as unneighborly, but they must be done. Delinquent owners must accept the fact that their association is a business, and like any other business, it must collect its accounts receivable if it is to stay in business. Unlike other businesses, delinquent accounts impact the level of services provided to people who have paid their obligation.

Board members should be flexible. If a member is unable to pay in full, a board should recognize that something is better than nothing; a written agreement allowing partial payments and a promise to pay the remainder should be considered.

How an association weathers this storm will depend on how successful a board is in convincing owners that assessments/dues must be paid with the other "must pay" bills. Boards must be willing to act at the first signs of delinquency. Failure to do so will increase the impact of the perfect storm.

http://www.ajc.com/opinion/content/opinion/stories/2008/02/05/homeownersed_0205.html

BrianB - Something to consider is what each owner paid for a home, which factors into the potential profit. Yes, everyone wants to sell his or her home for the most possible, but if one owner paid less than the owner who's home has a "value" of $12,000 more, it will offset your comparison of “worth” or market value.

If an HOA owner spends a paltry $1,500 a year for 10 years their $125 per month dues did not increase. Pretty good bargain. If an identical home’s “value” is only $12,000 more than the one in an HOA, that’s no incentive to live outside the HOA if you ask me.

In theory what an HOA does (amongst budgeting for reserves, and other things)is spread the cost of maintenance of common elements amongst the collective owners. Ideally this will provide a bargaining chip to the association (owners) by reducing a contractor’s price due to volume replacement or repair.

Throwing my two cents in: I think in urban areas, associations do very well; in suburban areas, they hold their own and in rural areas, there is really no way to compare with other real estate.

In my market, in the central city , homes in an association are going for 10-15 times what similar-sized homes are going for that aren't in an association. Why? there is a hope that by virtue of having an association your real estate investment won't return to the slums it arose from. Time will tell, but right now that's the belief. I think you will find that in most of the major cities around the country. Condo and HOA sales are holding up even in this market. At least, thats what the news reports are saying.

In suburbia, where the greatest loss of value is occuring, I think its a toss-up, depending on the market, the specific home and the association. During a down market such as this, buyers may try and avoid additional costs (assessments) when trying to qualify for a harder-to-get mortgage, but when the market is good, they rarely even pay attention. They buy the house first, then decide about the association. So right now, it is possible that non-HOA homes are receiving some preference in the market, but that probably wasn't true over the last 20 years. As to whether or not a home has more value inside an HOA as opposed to outside - there are examples and arguments for both sides, but as some have pointed out, no real study to confirm any opinion. So my opinion, its probably a push - changing in each market depending on the house, the association and the economy.

Rural - what do you compare them to - the farm down the road? that house that sits on 200 acres as opposed to your house on 5 acres? If you have side-by-side developments out in the boondocks, chances are they both have associations. Here the association adds value because the developer was able to create it by bundling some of the ongoing costs under the association and now you can live out in the hinterlands with some of the comforts of suburbia.

You only have to worry about an association if you want to buy a new home; there are plenty of non-HOA used homes available and will continue to be through your lifetime. Both will do well as long as everyone remembers the real common denominator for real estate value - location, location, location.

Joe

BrianB and Members - Lack of use by any one owner of an amenity does not diminish the value of an HOA. The use of the amenity may be lost on me, but future buyers, and existing owners may not see it that way. Don't know about you but when I purchase and upgrade a home I'm always thinking about resale. I bought knowing there was a pool and clubhouse that I would not use (certainly not as much as others) but that it made an excellent selling feature.

BrianB - If the buyer is like me and many, the amenity adds value to the HOA whether used or not. It's a selling feature, and it's all about marketing. When dealing with a buyer that doesn't see it that way, a Realtor's savvy should kick in. As for lot size it provides the potential for expansion possibilities whereas the same model house on a small lot does not. If I was your Realtor, that's how I'd market your property's benefit.

BrianB - In my HOA one home is actually seeking expansion. They have the largest lot but the home is the same model as others with smaller lots. Every owner within a 270 foot radius was given a letter by the borough's planning board with an opportunity to attend, or have their attorney attend the borough meeting to deny or grant approval for the addition.