HOA’s Play Hardball to Cope with Growing Delinquencies

July 13, 2010 — It’s no secret that many Home Owner Associations (HOA’s – also known as Community Associations) are seriously concerned about the rise in their members who are in arrears on their association dues. Now some HOA’s are fighting back, often with the gloves off.

As background, arrears on community dues come in several forms. Many developments have some units that have been abandoned or foreclosed upon, so dues are usually not paid on those units. In many other cases the owners have just decided for one reason or another to stop paying. Both situations put the associations at risk, as fewer and fewer members are available to pay the community expenses. In some communities well over 50% of the homes are behind in their dues. If the situation becomes dire enough it can lead to the association itself going into default on its loans or bills, resulting in foreclosure and loss of its assets.

No More Mr. Nice Guy
Recent news reports have detailed some of the often harsh steps Home Owners Associations are taking to collect these dues:
– The Magnolia Lane Condominium Association in Georgia shut off the water for at least one homeowner, forcing her to carry in water from 10 miles away.
– The Atlanta Journal Constitution reported in the same HOA article that the association prohibited the home owner and her guests from using the clubhouse and other facilities
– Home Owners Associations have tried and sometimes succeeded in garnishing wages for non-payment
– They have placed liens and/or foreclosed on homes. The most celebrated case is that of a soldier who returned from a tour of duty in Iraq to find that his $300,000 home had been foreclosed and sold for $3500 on the courthouse steps – all because his wife had missed 2 dues payments
– In Pennsylvania a community called A Pocono Country Place has resorted to deactivating the gate passes for owners (or their renters) who are in default. The policy means delinquent dues payers are forced to go to the main office and request a gate pass each time they want to enter.

A Horrible Situation for the Associations
The problem of dues non-payment is a giant one – the Atlanta Journal Constitution recently estimated that about 1 in 5 of U.S. households live in association run neighborhoods. Hardball tactics by the associations who have many non-paying members are still relatively rare. But these weapons bring awareness to the difficult situation these associations are in. Most associations are presumably sympathetic to defaulting owners who have lost their jobs or had a serious crisis. Probably less so to others, though, who choose to put in granite countertops or pay other bills while stiffing the association. This puts the association, if not in serious peril, at least in the position of laying off workers or cutting services. Sometimes the paying owners have to pay higher dues, or come up with advance money to the association to help it make ends meet.

The weapons available to HOAs are not pleasant. Suing for non-payment or attaching a lien can be expensive and postpone payment well into the future, if ever. Trying to work something out with defaulters can be frustrating and often ineffective. Closing gates and cutting off services seems to be more effective, or at least more satisfying.

Bottom Line
If you live in an association already, you should make yourself aware of HOA policies. If for some reason you can’t make a payment, be proactive and try to work something out. If you are on the HOA board, research the collection tools available to you, and get expert opinion before you act. If you are thinking about buying into an association, carefully check out the situation there before you buy. If more than a small number of owners are in default, looking elsewhere is usually be the best advice.

What Are Your Thoughts?
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For further Research
Bad Things at Good Communities
Falling Dominoes: More HOA’s Threatened by Non-Payment of Dues
HOA Collection Strategies