- The Washington Times - Friday, May 15, 2009

Homeowner associations, more commonly known as HOAs, have fallen victim to the economic downturn. A record number of foreclosures have resulted in delinquent HOA payments, prompting some associations to raise their fees and cut back on services offered to residents.

While some people have mixed feelings about restrictions being placed on homeowners by HOAs, many who live in these communities say that they enjoy being in a neighborhood where an association helps prevent property deterioration and delivers services to residents.

A survey taken last year by the Alexandria-based Community Associations Institute (CAI) showed that out of the nearly 1,000 responses, about half noted that the fallout from the economic and foreclosure crisis is having a serious effect on their association.

“Depending on the association, the problem can be a nuisance or it can be severe,” said CAI spokesman, Frank Rathbun. “Many associations are feeling more of a pinch now than in the past with so many homeowners having foreclosed, facing foreclosure, losing their jobs and not paying dues.”

It is a no-win situation for everyone, as the loss in HOA revenue can have damaging effects on a community and residents.

David C. Gardner, a Rockville attorney, said that he has seen a substantial increase in the number of accounts referred to his office by HOA clients in the past year.

Many homes purchased between 2004 and 2007 are worth less than the amount people owe on their mortgages, so financially troubled homeowners have no incentive to try to keep their homes. Mr. Gardner said that when a homeowner is in foreclosure, he or she is obligated to pay HOA or condominium dues until the home is sold. Once a home is finally sold, he said that the foreclosing bank is responsible for the dues from that point forward. However, the bank expects the former homeowners to pay the dues owed up to the date of sale.

“This is a problem because they [the sellers] are obviously in deep financial trouble or they would not have let the home go to foreclosure to begin with,” said Mr. Gardner. “If they file for bankruptcy, they can wipe out their personal liability for the debt.”

Mr. Gardner has seen a substantial increase in scenarios where homeowners simply can’t or won’t pay HOA dues. When it happens, the association usually writes the amount off as “bad debt” to avoid carrying it on their books as a delinquent account.

Donna M. Mason, an attorney with Segan, Mason & Mason P.C. in Annandale, agrees with Mr. Gardner and said her firm is doing more collections for community associations.

“The issue we’re having is that the volume of foreclosures has dramatically changed the way we do collections,” said Ms. Mason.

She said that there are more “write-offs of bad debt” and that HOA board members are more focused on the bottom line. “They have to think about the cost-effectiveness of collection and not spend good money going after bad money.”

Ms. Mason added that she works with a lot of communities hit hard by foreclosures, including those in Loudoun and Prince William counties. She has seen some associations cutting back on amenities as they try to figure out how to balance the budget.

In fact, across the country, many communities are reducing the services normally covered by HOAs. Professionals say that a community’s landscaping budget is usually hit the hardest. As a result, the common areas begin to lack aesthetic appeal as the grass isn’t regularly mowed and flowers aren’t planted.

“Associations are doing a lot of different things to fight the downturn,” Mr. Rathbun said. “They are doing less maintenance or landscaping, deferring long-term capital improvements, and some have had to take out loans.”

The fact that planned improvements for the communities have been postponed or even canceled can mean that repairs that need to be done will linger without adequately being addressed.

In some instances, resident volunteers are being recruited to help with repairs and things like cleaning up the neighborhood or maintaining the community pools and recreation centers.

Mr. Gardner said that, fortunately, he hasn’t seen any of the associations he works with in Montgomery or Prince George’s counties have to cut back on amenities or services yet. However, he thinks that some are raising dues and may be getting behind on their bills or transferring money from reserves to cover operating expenses or cover any shortfalls.

“I have seen associations in Prince George’s County with 10 percent of their accounts in legal status,” said Mr. Gardner.

He also said that HOAs have become more serious about turning over their accounts to lawyers to file liens and sue homeowners more aggressively to collect dues. However, he adds that some attorneys may be willing to work out payment plans with delinquent homeowners.

Realtors say that there are visible signs to look for when evaluating the effectiveness of a HOA in any given community. They say that buyers can look at the overall appearance of a neighborhood, in addition to visiting common areas (such as the community center and tot lots) to ensure that they are being maintained properly. Talking to neighbors to get a feel for the community is also a good idea.

Janet Rourke, president of the Leewood Homeowners Association in Springfield, said, “An HOA is effective if their finances are solid, the homes and common areas are kept up and the HOA regulations are enforced.”

Regulations usually cover things like guidelines for parking and trash, as well as architectural and landscaping changes in a community. Ms. Rourke added that if an HOA community is maintained well, it helps with the resale value of all the homes.

“Our resale value dropped when the bottom fell out of the housing industry, but homes are still selling,” said Ms. Rourke.

Ms. Mason said that it is extremely important that buyers get all of the pertinent information about a HOA when they buy a home - including board-meeting minutes and the budget, which would show the amount of money written off as bad debt or the amount in delinquent status.

“It’s always good to do your research, whether buying into an HOA community or not, because a home is your most costly investment,” said Mr. Rathbun.

CAI offers a free downloadable brochure, “Community Matters - What You Should Know Before You Buy,” which offers tips to homebuyers about HOAs.

Mr. Rathbun said that questions potential buyers should ask include:

c How much are assessments?

c When are the payments due?

c Are payments likely to increase soon?

c What do the assessments cover and not cover?

For a copy of the brochure, visit www.caionline.org.

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