- Associated Press - Sunday, July 10, 2011

The Inlet House condo complex in Fort Pierce, Fla., was once the kind of place the 55-and-older set aspired to. It was affordable. The pool and clubhouse were tidy, the lawns freshly snipped. Residents, pushcarts in tow, walked to the beach, the bank, the beauty parlor, the cinema and the supermarket. In post-crash America, this was a dreamy little spot. Especially on a fixed income.

But that was Inlet House before the rats started chewing through the toilet seats in vacant units and sewage started seeping from the ceiling. Before condos that were worth $79,000 four years ago sold for as little as $3,000. And before the homeowners’ association levied $6,000 assessments on everyone - and then foreclosed on seniors who couldn’t pay the association bill, even if they didn’t owe the bank a dime.

Normally, it’s the bankers who go after delinquent homeowners. But in communities governed by the mighty homeowners’ association, as the sour economy leaves more people unable to pay their fees, it’s neighbor versus neighbor.

“What the board is doing is trying to foreclose on people to force people out the door,” says Mike Silvestri, 75, who stopped paying his dues at Inlet House in protest over what he considers unnecessary and unaffordable assessments.

He and others say there were cheaper ways to deal with the rat infestation and leaky sewage that led the board to order up a costly plumbing overhaul. “They are bamboozling old people. I’m old, but I’m not senile,” he says.

In the past, housing associations have gained infamy for dictating everything from the weight of your dog to whether you can kiss in your driveway. Homeowners’ associations have served as the behavior police, banning lemonade stands, solar panels and hanging out in the garage. One ordered a war hero to take down his flag because of a “nonconforming” pole. Another demanded that residents with brown spots on their lawns dye their grass green.

Now, past the faux regal gates, beyond the clubhouses, many property owners in associations owe more than their homes are worth. Some are struggling to pay their bills after they lose a job. Others have had their pay cut. So they’ve stopped paying their association dues.

To combat the rise in delinquencies, boards are switching off utilities, garnishing income and axing cable. They are yanking pool passes and banning the billiard room. And, in the most extreme cases, they are foreclosing.

“The treacherous part is that homeowners’ associations are acting like a local government without restraints, and they have this extraordinary power,” says Marjorie Murray, a lawyer and founder of the Center for California Homeowner Association Law.

Today, one in five U.S. homeowners is subject to the will of the homeowners’ association, whose boards oversee 24.4 million homes. More than 80 percent of newly constructed homes in the U.S. are in association communities.

And of the nation’s 300,000 homeowners’ associations, more than 50 percent now face “serious financial problems,” according to a September survey by the Community Association Institute. An October survey found that 65 percent of homeowners’ associations have delinquency rates higher than 5 percent, up from 19 percent of associations in 2005.

Associations set rules for their communities. They levy monthly dues, typically between $200 and $500, and cover the costs of services that a municipal government usually takes care of: Road repair, streetlights, sewage systems. If an association’s budget is strained or major repairs need to be done, the board can levy a “special assessment” on top of those dues. And when one homeowner doesn’t pay those fees, all the other homeowners have to pick up the cost.

The rise in delinquencies comes as banks are taking over foreclosed homes and then leaving them vacant more often than ever. Taken together, these shortfalls are resulting in higher fees for all of the other homeowners, and massive financial angst for association boards.

Before now, associations rarely, if ever, foreclosed on homeowners. But today, encouraged by a new industry of lawyers and consultants, boards are increasingly foreclosing on people 60 days past due on association fees, says Evan McKenzie, a former homeowners’ association lawyer who is now a University of Illinois political science professor and the author of the book “Beyond Privatopia: Rethinking Residential Private Government.”

The government does not keep statistics on how often homeowners’ associations initiate foreclosures. But a nonprofit research group found that association-initiated foreclosures in the Houston area jumped from 500 in 1995 to 2,200 in 2007. Most association-related foreclosures in Texas do not go through the judicial process, so the group’s analysis represented only a fraction of the foreclosures that housing associations have initiated.

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