Homeowners Associations Get Nasty: Foreclose or Sue to Collect Dues
In 30 states, HOAs have the power to foreclose on homeowners who do not pay up, which has made them even more vilified than the IRS!
And now some are resorting to cutting off utilities: A Georgia woman has been living without water for more than a year now, all because she failed to pay her HOA dues.
Helen Burgess of Marietta, Ga., got behind on her bills after being diagnosed with cancer a few years ago. But she was able to work out payment plans with almost everyone except her HOA. The bank who held her mortgage, her auto note, her credit cards, even the IRS put her on payment plans to catch up. But she still owes the Magnolia Lane Condominium Association, who manages her 76-unit condominium complex, more than $5,000, which includes attorneys fees. Because of that bill, the condo association, which supplies water to the units, cut off her water shortly after June 27, 2009.
For over a year Burgess has been hauling in water in from her niece's home about 10 miles away.
But Magnolia didn't just dry out the tap. They have tried to garnish Burgess' salary and now have banned her and her guests from using the clubhouse and other common areas in the condo community.
Burgess, who is 59, says this is the craziest mess she's ever had to deal with and even asked her pastor to intervene.
Is she working at all with the HOA to work out a deal? Yes, but the association isn't talking about it publicly.
Texas State Sen. John Carona (R-Dallas), who serves as president of a huge national realty property management firm with $400 million revenue, says the Texas law that permits HOAs to foreclose should not be changed. Tweaked, but not changed. When you sign for your mortgage, he said, you also sign and legally agree to be a part of the homeowners association.
That's fair -- you are duly warned and don't have to buy the property if you don't like the association's terms (my words).
He advises buyers to read HOA rules carefully before buying. Seek counsel, if necessary. He also says that homeowners who don't pay their share of homeowners association dues force a hardship on other homeowners in the neighborhood, who often have to kick in more for expenses.
Recently, I heard from the president of Select Management Company in Dallas, a firm that represents 25,000 homeowners.
"While it is unfortunate that anyone would lose their home to foreclosure," writes Ted W. Smith, "state law allows the HOA's such action, only following explicit and numerous legal notification to a homeowner."
Smith says that HOAs foreclose on fewer than 1 percent of their communities. (HOA management companies have no legal authority to foreclose or sell anyone's home.) All SMC HOA Boards allow payment plans for homeowners in a time of need. Smith tells me that there are 3,000 homeowners associations in the Dallas area alone, and almost 30,000 associations around the state for a total of 5 million homeowners. HOAs also lower costs, says Smith: They serve their communities and defray city expenses while maintaining beautiful common areas.
In metro Atlanta there are an estimated 10,000 to 15,000 association-run communities. Nationally, about one-fifth of the U.S. population lives in HOA-run communities, a number that grew during the past 20 years as homeowners flocked to the community concept, wanting homes or condos in areas that provided multiple amenities. Amenities require maintenance, upkeep, repairs and improvements. Many of these obligations were once run by municipalities, such as city pools paid for by taxes. Now they are private.
Then came the recession: HOAs were forced to cut back, raise dues and whatever it took to stay afloat. And as more homes went into foreclosure, or stacks of fresh new condo units went unsold, vacant homes did not provide HOA revenue. Kathy Dorough is a Decatur, Ga., attorney who says that a whopping three-fourths of her practice involves collecting HOA and condo association fees. Her firm has about 2,500 open lawsuits, and paying members have been adversely impacted..
And some HOAs are even failing as a result of deadbeat homeowners, says Golding. In fact, he says it is not unusual to see HOAs with 1,000 homes or more not paying HOA dues.
As a result, the companies have had to carry bigger and bigger sticks. Perhaps they ought to give a warming whack? Because, on an individual level -- a soldier fighting for his country, a woman diagnosed with cancer -- it is disheartening to lose your home for any reason.
"Going through this is more frightening than when I went through breast cancer," said Burgess.
Want to learn more about home buying and home finance? If so, you won't want to miss
our online discussion with industry experts,
"What Works Now: Smart Moves When Buying a Home,"
created by AOL Real Estate in participation with Bank of America Home Loans.