HOA Delinquency worry potential New Buyer

Started by JayA • 4 replies • 2054 views

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JayA (New Jersey)
Posts: 1

Posted:

I am about to buy a condo in Bethany Beach Delaware. Nice development, built by Toll Brothers, 5 years old. Homes selling for 25% to 30% less than high mark. The property I am buying will sell for 25% less than it’s March 2003 sales price of $563,208.

There have been a few short sales but no foreclosures I am aware of.

The rental market is active during July and August.

I just learned that 12 of the 208 owners are 30 days or more delinquent on HOA fees (almost 6%). Total delinquency is over $19,000 (1.67% of total HOA income). The $19,000 seems to indicate the average delinquency is approximately 120 days although I do not have exact info on this.

I have read that 2% is a normal delinquency rate but we are not in normal times.

I am concerned about the delinquency but should it be a deal killer? Should I think it over again due to this delinquency?

What additional info should I ask the HOA for to get a better understanding of the problem?

Your thoughts will be greatly appreciated.

Cheers,

GeraldT4
Posts: 1,022

Posted:

How many homes in the development? You should have your attorney look into the capital reserve allocations year to date, the budget, things of that nature. However, at the end of the day your getting a 5 year old new construction property for $140,802 less than it's original sale price.

GeraldT4
Posts: 1,022

Posted:

JonD1
Posts: 2,350

Posted:

Jay:

Are you familiar with the area?

$19,000 represents 1.97% of the HOA's total income?

What amount is paid by each owner?

How many homes?

Have all the homes been sold?

Who now manages the property and makes up the Board?

Total HOA income?
Total operating budget?

Somewhere somehow the $19,000 will need to be made up.

Any reserves?

I am familiar with the area as I have traveled to Ocean City for more than 30 years.

I would like to know how many homes are year round residences. Versus vacation homes that might be last in line when the owners find themselves in hard times.

I would think most people would work to keep their homes rather than their vacations places at the beach. You might see more people having a hard time to make ends meet in the years to come.

Do you need rental income to make your payments? Plan to rent the unit?
And if you are unable to rent for the full months of July and August can you make up the difference?

I know Ocean City has seen quite a drop in property values with little hope for improvement in sight. In an HOA even if you can hold your head above water it is your neighbors ability to cover their costs that you need to be cautious of.

DanielH1 (California)
Posts: 482

Posted:

I'd think that delinquency will be an issue, no matter where you go.

If it makes you feel better, our delinquency rate is between 15% - 20%. Yet we still pay the bills.

Besides what others have suggested, I'd suggest two additional things:

* What is their collection rate? -- If they are good at chasing them down and collecting the money, that's a lot different than if they are bad at it. In our case, we've gotten pretty good, even though we have a high rate.

* Is the common area minimal? -- If the HOA has minimal common areas, they can skimp on maintenance without it being a big deal or, conversely, a small fee increase can go a long way towards fixing any problem. If the HOA has a big footprint with lots of infrastructure, they'll have a lot less flexibility.

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