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Homeowners associations feel pinch of foreclosures
Dues aren't high priorities in tight times
| Saturday, May 31 2008 8:44 PM
Last Updated: Monday, Jun 2 2008 10:21 AM
It’s not just about tacky lawn ornaments, unsanctioned shrubbery or garish paint anymore.
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Gene Foubert walks her neighborhood looking for infractions, but usually drives.
Gene Foubert finds a shopping cart in the street while making her rounds Saturday. She said she has to put that on her list of things to do and call the store where the shopping cart belongs.
As the housing crisis intensifies, so do homeowners association headaches. Association boards these days are grappling with how to handle unsightly foreclosures and collect monthly dues — critical for maintaining common areas and padding reserves — when so many residents are feeling squeezed by the economy.
“People are generally not going to miss their electricity payment because they don’t want that to get turned off,” said Ted Whittington, a Bakersfield attorney who represents about 40 local homeowners associations. “Sometimes homeowners association dues get knocked down on the priority ladder.”
Over the past 18 months, he’s seen an uptick in delinquent payments.
In simpler times, homeowners associations had a powerful enforcement tool at hand: the lien. An indebted homeowner who wanted to sell or refinance would have to first clear the lien, he said.
But a foreclosure wipes away an association lien, meaning a lawsuit is often the only way to collect back payments, Whittington said.
Brighton Estates Homeowners Association and Seven Oaks at Grand Island Homeowners Association both filed lawsuits this year to collect delinquent dues.
And Whittington recently handled a case involving a bank that foreclosed on a home and failed to pay assessments for four or five months.
“They’re going to pay,” Whittington said of the lenders. “They just need to be told about it.”
But catching an owner’s attention through a lawsuit costs money, said Michael Strahan, a board member for the Seven Oaks West South of Chamber Homeowners Association.
Gated developments, such as Seven Oaks at Grand Island, typically levy hefty monthly dues to operate gates, pay a security company and, in some cases, maintain private streets.
Strahan and his neighbors pay just $35 a month in homeowners association dues. So two years of a resident’s debt can be less than a lawyer’s retainer fee, he said.
“This could go on for years if a homeowner really wants to be belligerent,” Strahan said. “You put a lien against a house for 600 bucks. Big deal. It costs $500 to put the lien down.”
FRUSTRATED
Homeowners associations may be famous for enforcing rules, which might dictate everything from when the garbage can is permitted on the street to what type of roof an owner can choose.
But they also collect dues that pay for communal amenities such as pools, sidewalks, clubhouses and parks.
Once synonymous with condos, homeowners associations in Bakersfield typically involve single-family home developments, according to Patrick Kelly, owner of Kelly Management, a company that works for about 50 Bakersfield homeowners associations.
In 20 years, he’s never dealt with so many foreclosures and assessment delinquencies.
Those who dutifully pay often feel frustrated.
“Why is my neighbor’s yard brown?” is a common question, said Pacific Management Co. owner Jim Antt. A foreclosed home is private property and — even if an owner is obviously long gone — an association and its property management firm can run into legal trouble if they turn on water or mow the lawn, he said.
In the northwest’s Villages of Brimhall neighborhood, the homeowners association hired a maintenance service to handle extreme cases where foreclosures attract rats or pose fire hazards, President Mark Buonauro said. They’ve also beefed up security to fend off vandals and partiers.
The board has discussed raising fees, but so far hasn’t been forced to do so, he said.
Some pinched California homeowners associations are considering shutting down clubhouses or decreasing the frequency of services such as street sweeping, said Andrew Schlegel, vice president of finance for Merit Property Management Inc., an Aliso Viejo-based management company with association clients in Bakersfield.
Others raised dues. Associations can raise a monthly assessment by up to 20 percent in a given year without the law requiring a membership vote, Schlegel said.
One association, in Stockton, contemplated filing for bankruptcy protection, he said.
Schlegel estimates assessment delinquency rates have increased from a pre-housing bust figure of .25 percent to 5 percent today.
“When people sense that their home’s value is declining, then by extension they don’t like paying their homeowners association dues,” Schlegel said.
In a couple of cases, homeowners associations have had to pursue cash-strapped builders who were obligated to pay dues for unsold units but stopped when the market crashed, he said.
AVERAGE WORKING PEOPLE
Southwest Bakersfield’s Sagepointe Patio Homeowners Association, composed of owners in a 134-home neighborhood near Stine and Planz roads, has struggled with foreclosures and vacant homes.
“When the boom was going on here, we had a lot of investors come in, out-of-town people,” association Vice President Gene Foubert said. “They used (their homes) for rentals and didn’t pay any dues.”
The association has placed liens against some homes, but it’s hard to collect.
“I’d say this last year has been worse than it’s ever been before,” Foubert said. About 53 neighborhood homes are occupied by renters, making it harder to enforce community rules, she said. Some owners quibbled when the association contacted them about untrimmed trees or other rule violations.
“We had to start taking pictures to prove that they had kept it messy,” Foubert said.
Still, the association understands people are struggling in a down economy. It’s time to inspect homes to see if they should be painted, but the board will likely delay doing so, she said.
In Sagepointe, $50 monthly association fees maintain parks and pay to mow front yards. For now, they’re sufficient.
“We’ve tried to maintain very low monthly dues,” Foubert said. “We’re not a rich area — average working people and a lot of retired people.”