Thursday, May 29, 2008


Two articles out highlight some of the issues facing homeowner associations during the housing downturn.

Skipped dues crunch home associations:

We're looking at a very deep hole," says Kent Miller, president of the Los Arbolitos Homeowners Association in Avondale. "I don't know how we're going to get out of it. We've put liens on all the (delinquent) properties, but it doesn't do any good."

It's a scenario being repeated across the country. Delinquent fees at condo and homeowner associations have become an outgrowth of the mortgage crisis. Housing cooperatives, in a squeeze because of unpaid fees from struggling homeowners, are scraping to pay for landscaping, maintenance, pools, recreation centers and other amenities.

Paying home dues painful:
Delinquency rates on monthly fees, which normally hover in the 5 percent range, have jumped to 20 percent in some cases. That has forced associations to make up the loss byadding to the burden on remaining homeowners, already struggling to make the regular payment.
However, he is recommending that they increase - possibly double - the "bad debt" line item in their upcoming budgets, which means monthly assessments will go up, too.

"It spreads the hurt over everybody over a 12-month period," Hoffman said. "It doesn't have the impact it might otherwise have if you have to have special assessments."
All this financial turmoil means that associations won't be able to put money into reserves for pricey projects such as redoing roofs and streets. Eventually that would likely mean increased monthly fees, special assessments or reduced services.

Homeowner associations are there to ensure conformity of the neighborhood and thereby maintaining or increasing values. But because the homeowners are bound by the CC&R's they can be on the hook for additional fees over and above the monthly dues. It is important to factor in HOA dues and special assessments when making the calculations for what to pay for a house. Many of the newer new home communities have HOA fees of $250-$350 dollars, which is the equivalent of up to $60,000 less purchasing power when going to buy a home. The newer home communities are also more likely to have mello-roos and landscaping fees.

So for the joy of having a greenbelt and a community pool you get the higher likelihood of default of your low equity position neighbors and increased exposure to special assessments. I'm actually not as negative as this post would appear towards HOA's, it is just important to factor in the whole picture. I would just make sure to realize the risk, especially in many of the many condos popping up around the SFV and some of the newer home developments from Northridge to Ventura.

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