Some HOAs Foreclosing on Residents

July 11, 2011

While banks are usually the ones who go after delinquent home owners, more homeowners’ associations (HOAs) around the country are deciding to take on that power too in fighting against home owners who have stopped paying their HOA fees.

For communities governed by a homeowners’ association, which one in five communities are, more HOAs are discovering they have a power they have ever rarely acted upon until now — the right to foreclose on residents who stop paying fees.

For example, a condo complex in Fort Pierce, Fla., for 55-and-older residents was once a desirable area with condos once fetching nearly $80,000 four years ago but now sell for as little as $3,000. The HOA levied $6,000 assessments on its residents for much-needed repairs in the complex and when some residents didn’t pay, the HOA foreclosed on them, even if they didn’t owe the bank anything.

"The treacherous part is that homeowners' associations are acting like a local government without restraints, and they have this extraordinary power," Marjorie Murray, a lawyer and founder of the Center for California Homeowner Association Law, told the Associated Press.

If HOAs need to do major repairs, the board can levy a “special assessment” on top of its regular dues. When a home owner fails to pay, all of the home owners then have to step up to pick the costs.

“What many people 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,” according to an article by the Associated Press. “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. Home owners typically have no right to a hearing.”

About 65 percent of HOAs have reported delinquency rates higher than 5 percent, according to a September survey by the Community Association Institute.

Source: “As More Are Unable to Pay Homeowners’ Fees, Associations Pit Neighbor Against Neighbor,”Associated Press (July 7, 2011)