HOA solvency/market problems

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Submitted by jpinpb on April 12, 2008 - 7:18am

I was taking to a neighbor in my complex about my favorite topic, the RE market. He proceeds to tell me about an acquaintance of his who lives in a condo complex in El Cajon. She has a dilemma. She is one of four people left who are paying HOAs.

Now unfortunately I don't have details and he didn't either, as in name of complex or how many units, etc.

The problem is all the other owners have defaulted on their loans, are stil living there, just not paying on the loan or HOAs. Banks have not foreclosed yet.

The real problem is the four owners who are making mortgage and HOAs are paying and are now getting regular special assessments which are getting very expensive.

Apparently they got a HUGE water bill assessment and they are in a bind b/c if they don't pay, the water will be turned off, is what he was saying.

Can the water department do that?

We discussed this further, that if the bank eventually forecloses, the bank is obligated to pay the HOAs, right? But I guess whichever bank has the first loan, if they sell and get lower than what is owed to them, then the second lien holder and the HOAs are $hit out of luck.

So do these four owners continue every month to pay this very high water bill and other special assessments? They don't want to walk and f/up their credit.

Very catch-22 situation. One more reason to hate HOAs, besides their military rules and regulations.

If this happened in EC, what's to stop it from happening in other complexes that get real bad?

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Once the foreclosure
Submitted by sandiego on April 12, 2008 - 8:11am.

Once the foreclosure happens, the bank (owner) is obligated to pay the HOA. In most cases they won't. The HOA assessments will accumulate and become a junior lien on the property (behind RE taxes, recorded trusts deeds). As you stated, if there is any equity in the home, they might eventually get paid when the home is sold but that could be years (and tens of thousands of dollars) later. The HOA can go after the former owner personally but that is usually a waste of time.

My building has $48,000 in HOA receivables. They also just wrote off $6,000 on one unit that is uncollectible because the former owner didn't pay for several months before they were foreclosed on.

That is exactly the point.
Submitted by jpinpb on April 12, 2008 - 8:49am.

That is exactly the point. 6k on one unit. Multiply that by however many units. Banks are dragging their feet for many months beyond the customary 3 months to foreclose. That's money not going to the HOA. And probably the HOA won't go after the former owner, true. And junior liens nowadays won't get paid b/c properties in foreclosure have been selling far less than what is owed.

It's a problem that I have not seen or heard discussed much. It came up on a thread about a property in Escondido that was 70% off peak and SDR mentioned the HOAs were insolvent.

In the situation w/the four owners in the complex carrying the costs while other owners continue to live there, that's a real dilemma.

And so I ask, if things continue to go bad and people walk just b/c of depreciating asset, even if they are capable of paying, then perhaps this issue will come up in other complexes that have HOAs.

It will be a huge issue
Submitted by sandiego on April 12, 2008 - 8:54am.

It will be a huge issue moving forward.

All things considered, the HOA is pretty impotent in a down market. I don't know exactly how you solve the issue if people don't feel that they have to pay on an unsecured obligation.

Can you imagine being in
Submitted by jpinpb on April 12, 2008 - 9:01am.

Can you imagine being in that situation, one out of four owners being responsible, paying the mortgage and HOAs and other owners throwing in the towel. Those four owner stuck w/huge bills every monthrs, carrying the costs of others. That sucks and blows. What a mess. There must be some kind of regulation regarding this. It seems so wrong for this kind of situation to occur. There should be some alternative recourse when a situation like this arises. I mean, to have the threat of water being turned off. You need water.

The more and more I hear about HOAs, the more I am determined to avoid anything having to do w/them.

At least when the
Submitted by sandiego on April 12, 2008 - 9:48am.

At least when the developers/banks are still involved selling units, they have a vested interest in maintaining the property. I think most problems start occurring a year or two after the project sells out.

Living in a building downtown with less than 150 units, I see how difficult it is to get proxies and majority votes to get things done. I can't imagine how it will be for the huge developments (300-700 units) to get anything done.

The strategy we used is to
Submitted by cv2 on May 15, 2008 - 3:30pm.

The strategy we used is to use our junior lien to force the foreclosure as soon as possible. As many of you have said, nowadays it is not good to be a junior. By forcing the foreclosure you are speeding up the process tremendously because banks are swamped with NOD and are not proceeding to foreclosure. This is also a trick on the bank because that's unrealized loss (or maybe uncollected interest) vs real loss on the book. Once it is foreclosed, you can start collecting HOA dues on the new owner. Banks can't sell it until the HOA dues are current.

Granted lawyers are expensive but in the long run it will save HOA money. Also as a matter of principle, if you live here, you have to be responsible and do not expect others to take your burdens.

Good for you cv2. That's
Submitted by jpinpb on May 15, 2008 - 4:50pm.

Good for you cv2. That's excellent and a smart move.

HOA is the stupidest idea
Submitted by masayako on May 15, 2008 - 5:34pm.

HOA is the stupidest idea ever.

"HOA is the stupidest idea
Submitted by SmellsFeeshy on May 16, 2008 - 11:09am.

"HOA is the stupidest idea ever."

Well for condos/townhomes its unfortunately a necessary evil.
The problem with not having an HOA is that its pretty difficult to find a house in a decent neighborhood that doesn't have one in SD.

Sounds like the complex
Submitted by just someone on May 16, 2008 - 12:05pm.

Sounds like the complex needs individual water meters, or at least the ability to turn off individual units.

Also, if complex has a pool/spa, etc, she should demand that common area privileges be taken away from units with non-payment.

If owner of the non-paying unit is not in bankruptcy, HOA's need to be smart, and go after owners in small claims court, rather than a lien.