Foreclosures by Homeowners’ Associations Rising as Their Financial Condition Worsens

While foreclosures are falling on a nation-wide basis, one category that is an exception is foreclosures filed by homeowners’ associations against members that are delinquent on their fees. And on a more general basis, due to defaults and slow payments, in aggregate, reserves of HOAs have fallen and many have scrimped on services and maintenance as a direct result of the housing bust. Foreclosures by bank servicers has produced an adverse feedback loop: homes in foreclosure sit vacant, often for lengthy periods, and they don’t pay fees to the HOA. That produces shortfalls in the HOA’s revenues versus their needs. Thus when a homeowner now goes into arrears, the HOA has less ability to cut them slack and work out a payment or catch-up plan.

This phenomenon is broader than you might imagine. Homeowners’ associations aren’t just a fixture of condominiums in Sunbelt states like Florida and Nevada. 63 million Americans live in residences that are in HOAs, and 80% of new homes sold are subject to these arrangements. They aren’t just a way to pay for common services in multi-family housing; they are increasingly an example of privatization of formerly public services. As a new Reuters story explains:

Homeowner associations first took off in the 1970s as local governments looked for a way to offload costly services, such as snow removal and road repair. Municipalities have encouraged their growth since through tax incentives and zoning laws…

But people who buy houses in an association often don’t bother to read the agreements that spell out what covenants owners are obliged to observe. They may unknowingly forfeit the right to fly a flag in the front yard, let a shrub grow any old size, or allow their kids to shoot hoops in the driveway. Homeowner associations typically have the right to place liens against wayward residents. Either through a court or state-regulated process, they can then foreclose on houses worth hundreds of thousands of dollars even for a few hundred dollars of unpaid debt, much like a municipality can for unpaid property taxes or a bank for a few missed mortgage payments.

The article starts with the story of a woman who ignored her annual $48 HOA fees, thinking they didn’t apply because she didn’t use any of the services they funded. She lost her home over $288 in unpaid HOA fees. She said she never got any notice that a foreclosure action was underway. Another ignored notices, assuming they were fines because his children were leaving their bikes outside. He lost his $350,000 home to $900 in fines.

But unlike a municipality, which will continue to charge property taxes once a home is foreclosed (they become the bank or investors’ problem), a HOA can’t assess fees to a party if it hasn’t signed a HOA agreement. That is putting many of these groups under financial stress:

About 70 percent of association-governed communities are underfunded, up 12.5 percent from 10 years ago, according to Association Reserves. The average association has financial reserve accounts – the amount required to maintain infrastructure and common areas – that are only funded at 52 percent, down from 60 percent a decade ago, its research shows.

Tyler Berding, an attorney whose firm is consulting with a San Francisco condo homeowner association, suggests the problem is one of governance. “It’s very much akin to the public pension crisis,” he said. “Homeowners’ associations are simply not putting enough money away to make the repairs and replacements they will have to make over time.” The condo in question is having to levy a $70,000 special assessment against each resident to restore the building.

Because these associations are private and not required to report information, it’s impossible to know how often they are foreclosing or facing serious financial shortfalls. The Reuters account feature anecdotes of how some of these organizations, often run by inexperienced volunteers, have engaged in fine-collection strategies that look an awful lot like cops going on a traffic-ticket binge to help fill a local budget gap. That’s producing more and more calls for restraints on the HOAs’ powers:

Over the past decade, a citizen movement has grown to curb the power of homeowner associations, which remain largely unregulated. Nevada is just one state that has appointed an ombudsman to field complaints from homeowners; California and others have passed statutes limiting the assessment increases boards can make without consulting homeowners.

It’s not clear that this recourse is effective, but it is at least a step in the right direction. And we’re almost certain to see more of both trends: more and more shifting of the burden of municipal services onto homeowners and more efforts to increase accountability and curb abuses. In the absence of more detailed provisions, a “loser pays” provision for litigation files against HOAs would hopefully curtail some of the worst behavior as well as producing incentives against filing frivolous lawsuits.

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  1. Carl

    Abuse by HOAs in Texas has resulted in the enactment of laws limiting the circumstances under which foreclosure can be used against homeowners. I’d look for more of this as more HOA overreaching comes to light in other states.

    1. Kim

      Abuse by HOA’s stems across the country. It is exactly the same in Illinois. Another avenue for these HOA’s to have even more over reach is by forcible entry and detainer. This is where they kick you out and rent out your home for past dues, fines or fees. In regards to single family homes it becomes an even bigger problem when the HOA does not carry the proper insurance to cover the home for damages. In single family home HOA’s they must list each property within the subdivision under their master policy in order for it to be covered and this is very costly. Each resident that finds themselves in this predicament needs to get a copy of their insurance policy for verification purposes, then you might have a case against the Association.

  2. Foppe

    In other words, most people never interact with the HOA and only get impersonal letters from them, and the HOA, even though “local” and in principle about improving living conditions, happily forecloses without ever personally contacting the people whose lives they are considering to ruin? How utterly bizarre, and bureaucratic.

  3. Aaron Layman

    Most of the homes in the Houston area fall in some type of HOA. The HOA reform Carl mentions is part of a backlash against overzealous HOA boards in Texas, part of which resulted in the foreclosure of one Winona Blevins, an elderly widow who lost her home to foreclosure by the HOA. We’re still seeing a push for better transparency in HOA management, but it’s an uphill battle. To get an idea of what we’re dealing with in Texas (and this is a nationwide problem) just look at Associa Inc and John Corona…

    1. NotTimothyGeithner

      Maybe a few in reasonable areas where the HOAs are manageable and geographically constrained, this could work, but most local governments except for the gross ones will fight that tooth and nail (Bloomberg making sure the rich neighborhoods didn’t have to deal with slush). They don’t have the money.

      Those “green spaced” HOAs are too costly considering the state of local government operations or are too numerous. The city would be happier with a lien and an eyesore over the short term anyway.

    2. Lyle

      It should be noted that in Houston and unincorporated areas in Tx HOA’s also enforce the deed restrictions against property use that would elsewhere be handled by zoning. (there is no Zoning in Houston or in unincorporated areas in Tx). These include restrictions that a home should be single family, don’t run businesses from the home… One thing that changed is it used to be that the HOA dues were escrowed but that changed in the 1980s. Given that an HOA foreclosure potentially affects the rights of the note holder perhaps they will go back to escrowing the HOA dues just like the escrow for insurance and Property Taxes.

  4. TarheelDem

    Homeowners associations for convenience have contracted with property managers to manage the billing and maintenance service. What was to provide local control goes into autopilot with little oversight and no independent review. The cases of onsite managers or contracted property managers embezzling funds from homeowners associations is a serious problem and one which homeowners associations will not deal with out of fear of people selling out of the neighborhood or not purchasing because of the past history.

    What has caused homeowners association boards to go on autopilot are the many work hours demanded on jobs or preoccupation with finding work after layoffs. Even homeowners associations that were very active in the 1960s through 1980s began having difficulty recruiting board members in the 1990s and often face board membership crises today.

    The market society culture that has been built does not allow for civic activities no more than it allows for truly civic spaces.

  5. F. Beard

    Why on Earth are home values so important that homeowners submit to petty Nazis? A home should be something that one lives in for generations, not an asset to be sold or ruled over by strangers.

    Our society sucks and the banks are the root cause.

    If Alexander Hamilton were to be shot today, Burr should use a mini-gun with the trigger locked on. But alas, crooked ideas are not that easy to destroy, at least not with an imperfect population such as humanity is.

    1. TarheelDem

      Homeowners associations started as the private managers of common parklands, playgrounds, and stream buffers. Not all of them are architectural Nazis, but most of them have rules about appearance issues that affect property values. High on the list are cars parked in yard or under repair and visible from the street. Pet enclosure or leash rules. Pet curbing rules. Some used to have community television antennas to prevent the forest of antennas on roofs. Pet rules and outdoor clotheslines seem to be the most controversial area for single-family detached communities with homeowners associations. Some provide dispensers of plastic dog-poop bags as part of the street furniture along sidewalks and expect residents and visitors to use them when curbing their dogs.

      A lot of condominium townhouse homeowners associations maintain the roofs and siding on the townhouses and landscape the yards. Those tend toward uniform sets of different color siding and rules about what can be added to the outside of the house.

    2. NotTimothyGeithner

      Hamilton would be ignored in favor of the charlatan Burr. Burr never would have challenged Hamilton to a deal because Hamilton would be ostracized as unserious. Burr founded the banking entity now known as JP Morgan Chase.

      1. F. Beard

        Then the duel should have been with hand grenades at two paces with glue on the grenades.

        Still, in theory, 100% private banks are ethical but because they are unstable they often get bailed out regardless (TBTF).

        1. NotTimothyGeithner

          What I meant was Hamilton today would be regarded as a DFH-type even though he may not be as progressive/lefty as we might like. He would just be too intelligent and bold for Versailles on the Potomac who only fall for charlatans whether they are believers in their own crap or not.

          1. F. Beard

            I had to look up DFH. :)

            Perhaps you’re right, if Hamilton had lived he might have undone, say, sovereign borrowing by the US in favor of just spending fiat into existence. But he didn’t so now he’s regarded as a dirty fascist, whether he copulated or not.

            1. NotTimothyGeithner

              Hamilton was a Continental, so he gets a pass in my book.

              The Burr/Hamiltion conflict was over establishing a bank which has been re-branded to JP Morgan Chase over the years. Hamilton thought Burr was a con artist who would rob everyone blind, and oh right, Burr was a con artist who robbed everyone blind. Burr was only able to get the charters for his bank during the Yellow Fever Crisis. Hamilton was able to blunt Burr until then.

              I do find the problem with judging historical figures is we tend to judge them from their shoulders and not what they saw, and Hamilton understood the U.S. had issues which needed to be resolved while the Declaration Generation was still on the scene because it might lead to conflict. After Jackson, the last American official connected to the Revolution*, left the scene, the South started to make noises. Grant wrote he always thought the Mexican War was a way of preparing for Southern secession by providing access to the Pacific.

              *J Q Adams.

    3. JGordon

      That’s right. Our society is laden with control-freak Nazis who imagine that they know what’s better for everyone else and then set about enforcing their ideas through violence. Monetary and political theorists come to mind here, but it’s also true of pretty much everyone.

      Even at a low pay job with low responsibility you still have Americans running around snitching on their fellow low-paid coworkers every chance they get–a practice that foreigners find utterly revolting when they encounter it I might add. It all ties together with this HOA thing and the monetary/gun control nuts. Americans are just a nasty bunch of people who don’t know how to mind their own business.

    4. fajensen

      Why on Earth are home values so important that homeowners submit to petty Nazis?
      Because, little Napoleons and Lucrezias are exactly the kind of people who have ample spare time and the desire to be on the board in voluntary organisations. Normal people are too busy doing “normal people things” to worry about the misfits cloaking themselves in power – until it suddenly becomes their problem and then it is too late.

      My teenage daughter and some defectors started a new karate club in another town from scratch due to misfits on the board creating a toxic environment, My overworked brother is on the board of his housing association even though he swears for hours every time there is a meeting, just to be able to keep the nut-jobs out and prevent retarded rules from being imposed. My mother used to be on the church board, e.t.c.

      All organisations require the hard and dedicated work of normal people to remain useful and sane, voluntary organisations with actual power even more so – but outsourcing employers and “downsourcing” of government bureaucracy are sucking an ever increasing amount of time and effort out of people. So, things that were actually good and well-intentioned gets neglected and turn into the personal playground of bullies, frauds, idiots and misfits.

  6. PeonInChief

    HOAs in Florida may be the worst. In a burst of legislative stupidity a few years ago, HOAs were allowed to assess tenants for HOA dues owed by their landlords. This put the tenant in the unfortunate position of having to deal with both the HOA demanding payment and the landlord demanding the contract rent. In several cases tenants were evicted because they were unable to figure out how much to pay to whom. In addition, the Legislature didn’t even allow tenants to opt out and move, rather than deal with it.

  7. LAS

    There is another side to this coin. Too few homeowners attend the annual meetings (not to mention the monthly meetings to which they are also invited if they wish) of their HOA and many fail to vote on issues or board member office. This causes the HOA to assume additional expenses when the annual meeting fails to achieve a quorum or a decision needs to be reversed. I’ve attended meetings when the board really tried diligently to arrive at decisions that reflected the desires of the residents but too few residents bothered to attend or respond by mail to give the needed input. Absent residents later had a knee-jerk unfavorable reaction to the board’s decision. In the instance I am thinking about, once people actually weighed in, the board accommodated the residents, but it cost everyone needless time and expense because the residents had ignored original requests for their feedback. Too many people behave as if community services just happen by magic. They are not involved in their own community and a lack of civics is showing up here in private communities as well as local government entities.

    1. Ed S.

      Too many people behave as if community services just happen by magic.

      Served 3 years as a board president — large complex of 60 acres and 1000+ units. My “compensation” was a turkey sandwich at the 4 hour long monthly meetings. Annual meetings consisted of people showing up to complain to the board about some petty issue or about the association fees. Always offered the biggest complainers an opportunity to help (which of course they never did).

      Enough about me. The “condo-nazi” is a real issue — we’d have people drive around looking for trivial rule violations. As an example — empty flower pot and hand shovel on porch; porches aren’t for “storage”. Fix or pay fine. And because the stakes are so low, the fights get out of control. We had a “professional” manager who wanted to sue and/or foreclose on an owner because the owner refused to remove a 6 inch by 9 inch picture from the wall of their porch. Just ugly.

      Reserves issues will get worse in the coming years — most associations aren’t competently run financially. Owners don’t want to put aside funds for anticipated repairs (e.g. 1/20 of the cost of a new roof every year) and most fees collected just pass through (e.g. water, sewer, electric, etc).

      Avoiding associations is prudent, but if you must become involved, then at least look at the CCR’s and the financial position

      1. LifelongLib

        Some other owner probably thinks the shovel and flower pot are eyesores that are lowering his property value, and yet another wonders why (if you allow shovels and flowerpots) he can’t have his old rusty refrigerator out there. It’s a no-win.

    2. F. Beard

      Well, if most of us were on the family farms stolen by the banks, we probably could not even see our neighbors’ houses because of the distance between them and us.

      Purchasing power creation must above all be ethical. More and more I see Dante’s point about assigning bankers to the lower rungs of Hell. Is there a single social ill that the banks are not behind?

  8. MB

    As a homeowner in an association, the risks of losing your home to an association is now a firm reality vs than in the past. The change in legislation that allows HOAs and the attorneys to take a home to foreclosure over a minor amount of money was legislatively changed so that this, indeed, can happen. I do think this should be reversed so that this cannot occur over less than a certain threshold, that in person notice of intent to proceed be required, that aggressive options to work out a settlement be required, that the person’s comprehension and mental status be taken into consideration or family members be notified of the risk.

    Recently, in reviewing a subscription site, (ForeclosureRadar and PropertyRadar), I noticed a paid off town home with a value of over $500k with a $4600 first lien against it. This is undoubtedly an association that has brought foreclosure proceedings against a property over a relatively minor amount of unpaid dues or penalties. This person may be ill, in a care facility, unable to receive or read any notices that arrive, they might have language issues, or they just might be a stubborn, angry person at what is perceived to be unjust penalties over something they disagree with. What recourse would an association have to bring such a person to heel? TAKE THEIR HOME? Dues are unsecured debts – they aren’t secured! There has to be a better way than filing a foreclosure lien. It’s outrageous.

    1. TarheelDem

      Often the contract one signs with the homeowners association when purchasing a home in the neighborhood defines the lien status of unpaid homeowners association dues even if there is not governing state legislation.

      1. MB


        That *may* be the case, that SOME may know of this risk, for those who bought AFTER the legislation was changed. (It was within the recent past years). Is there any explicit explanation that buyers sign acknowledging that risk, or that earlier buyers who get grandfathered in would affirm they understand that risk? As a former Board member and President (and subsequently, one who has had some conflict with a later Board), Board members may have their own axes to grind and their own petty peeves and agendas. This is a volunteer role despite their perfect or imperfect temperaments. They are indemnified by Association paid insurance and they have the Association’s funds to legally exercise their personal interpretations of “rules”, that can force a homeowner into a stubborn stance where they have no options except expensive ones. The cost of justice isn’t free and the Association has a fund to back up their interpretation of justice. If more came out of the Board member’s personal pockets, we’d see more member mediation panels and solutions.

  9. Garrett Pace

    The expenses of maintaining empty properties and the price reductions caused by abandoned blight on surrounding properties must vastly outweigh the petty amounts described.


  10. chicagogal

    Thank you for a balanced article regarding HOAs! So many times they are portrayed as vicious and petty when in reality, the board is trying to maintain and improve the property values for the whole community. There are certainly board members who are control freaks and believe that’s how their HOA should be run, but the majority of volunteers are regular people who just want to do right by and for their neighbors.

    It’s not surprising that HOA foreclosures are increasing while bank foreclosures are decreasing. People who find themselves in trouble financially due to whatever reasons stop paying without realizing what can happen. There are also those who feel they don’t have to pay and rely on the fact that regular board turnover won’t catch them and force the issue. It’s hard when you have to make that decision to foreclose and evict your neighbor when you want to give them every chance, but it’s the right thing to do to protect the rest of the community.

    There’s a lot of discussion within the HOA community nationwide about how to get prospective, and current, owners/members to read their governing documents, but it’s just not something that can be forced. There has also been talk about requiring board members to be licensed, or at least become educated about their responsibilities. Illinois has laws governing condo and non-condo HOAs and requires managers to be licensed.

    1. LifelongLib

      HOA boards actually have very little discretion about enforcement. To fulfill their responsibilities they have to enforce the HOA rules as written (however petty they seem) or face lawsuits for selective or non-enforcement. And as others have noted it can be very hard to change the rules, often requiring 75% of homeowners to vote. In the U.S. that percentage of voters doesn’t even participate in presidential elections.

      1. chicagogal

        Practically speaking, HOA boards have far more discretion than you think. There is always someone who threatens to sue, but very few lawsuits are actually filed. Those that are tend to be for major issues like a board passing a special assessment without a membership vote if that’s what’s required in the governing documents. Any legal fees not covered by D&O insurance are paid for by the rest of the community, and they will turn the person who sues into a pariah. That happening in my HOA and that person is now a board member to the disgust of those who disagreed with why they sued, but they have just as much right to serve as any other homeowner, and are in a better position to ensure there is no need for other lawsuits.

        As for the rules, petty or not, they can be certainly be changed without as much trouble as people think. It’s the other governing documents, i.e. By-Laws and Declaration, that will generally require a majority vote of the membership, though there are ways around some of those restrictions.

    2. Kim

      This maybe a balance article but fraud and embezzlement and the many other illegal activities by board members rarely ever get the proper media attention. On another note maybe the reason for the many foreclosures in Hoa’s is the avenue they have right now to just walk away! They now have a way out of this HOA hell. Governing documents change at whim, sometimes monthly with no logic. CCR’s were passed not by a vote of homeowners who agreed but the association found out who held the titles of homes and got them to vote for them, do you think these banks or title holders read or understand what they voted for? Yes managers have to be licensed in Illinois but who licenses them…a little group called community association institute… a lobby group who fights for association rights not for the rights of home owners. The only way this mess will be resolved is restoration of constitutional rights, so we as residents and paying members could fight them on a level playing field.

  11. alex morfesis

    I am sure somewhere in america there is an association that is not run as a criminal enterprise…but I aint seen it yet…yes there are some people who get volunteered and think they are working to help their community, but the reality is that most management companies work to make sure there is no one with half a brain sitting at the board level so they can justify theft. At least in the tampa bay area of florida, associations are so OVER FUNDED that they have to come up with borderline criminal IRS fraud to justify the over stuffed “reserves”. Grass cutting HOA’s who then convert retention ponds into personal lit up lakes for the benefit of a few while having everyone in the community paying to improve the value of the homes of a few. The law is exceptionally direct, these are non profit enterprises who are not allowed to bill except for what is needed… but this fraud that they are underfunded…especially from an organization, the Reserve Association, whose job is to get paid to write reports justifying theft and conversion…It is laughable the estimates presented for costs and expenses, but most homeowners living in association based housing are not single family homeowners, have probably never repaired or rebuilt a home and so are easily “tooken” by the professional conversion factory known as “professional management”…and the lawyer quoted that there would need to be a special assessment of $70,000 per person….read his blog…he argues that buildings over 40 years old need to be “demolished”…its amazing some old granny has not run him over with her volvo by now for his insanity…

    in florida, the HOA law specifically states that the associations are required to follow the mortgage foreclosure process in these lien lawsuits…not one of them does it…leaving them open to insane litigation…they just act like they are getting a judgment on a credit card debt…when challenged they settle because they don’t want an appeals ruling that will throw their little scam out and then them having to make reparations for their improper foreclosures…

    its another racket…yes, in some, newer developments, where very few of the units sold and there is a large common area to deal with, there are some issues…but the lawyer rambling about the $70,000 wrote a report back in 1993 that the world was coming to an end for associations, claiming they had a deficiency at only 60% of liabilities…his new report claims its worse now at 54% of liabilities…somehow those properties from 1993 till today survived…I wonder how that could have happened…this guy is in the professional scare people into doing something stupid industry…

  12. McMike

    I am having a hard time imaging someone losing their home to a foreclosure over a few hundred dollars, without at some point being given the opportunity to fix it.

    I suspect the guy who “ignored the notices” is making a major understatement as to his own negligence. Or lying.

    I don’t know how it is in other states, but in mine, the HOA is elected by the homeowners, and the meetings are public, and the rules are all spelled out right there in the covenants.

    Aside anecdotal instances of fraud and overspending HOA’s, it is actually quite simple: every dollar that one homeowner fails to pay must be covered by their neighbors. Failing to pay your dues is in effect the same as forcing your neighbor to cover your trash and landscaping bill.

  13. mimi1963

    Businesses complain about regulation but it seems like Americans are the onwe living under all of the regulations. It seems like no matter what large purchase you make someone is always trying to get it from you to resell it, while we have extremely limited recourse. It is extra hard to make these purchases even after you work so hard to earn and save enough money for them. We have no control over most of the biggest and most important issues in our lives. It feels like businesses have the freedom and we don’t. The only way I can think to change this is with my pocketbook by trying to stay aware of what the businesses I shop at are doing behind the scenes. If a business owner is working behind the scenes to make life harder for people I am not giving my money to them. I hope a lot of people start doing this because money talks. I’m not going to pay them to then turn around and use it against me or you willingly.

  14. Orwell Mews

    Goodness how Sad. These poor serfs sign away every right they ever had to the biggest assholes in the neighborhood yet they preen about somehow ‘owning’ their haomes. It’s nothing but a ring in your nose.

  15. Otter

    These are exactly the same problems as exposed in the horrified stories about big government, big business, big bureaucracy, big crime. Exactly!

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