Thursday, July 15, 2010

The Next Foreclosure Fight

CNBC does a segment oh HOA foreclosures. Tom Skiba of CAI defends the HOA's ability to foreclose and Bill Davis does a great job of presenting the other side. You can view the video clip at this link.


Fred Pilot said...

Bill Davis took this segment beyond a circular, unproductive debate over financial obligations by addressing who really benefits from privatized local government: its private staff and vendors.

When the cash flow suffers, these private vendors understandably get worried but cloak their concern in righteous b.s. about how the "homeowners" get hurt when everyone can't or won't pay the assessments on their properties.

Certainly local government property tax revenues have suffered during the residential real estate crash and subsequent recession but you don't hear county tax assessors claiming how unfair it is to taxpayers who are keeping their property tax bills current.

Anonymous said...

Skiba (2:55) The number of homeowners association foreclosures pales in comparison to the number of bank foreclosures going on. We estimate that it would less than 1/2 of 1% of the total. And in most cases, an association that begins foreclosure proceedings stops right there. They very rarely go to actual sale. Usually the threat of the foreclosure is sufficient to get the homeowner and the association speaking together so that they can resolve the past due amounts and figure out a way to work themselves out of that problem.(3:26)

According to a recent NPR story, 10% of foreclosures in Texas are initiated by HOAs, not mortgage lenders. I suspect the only reason we know that is because of the work done by the Adolph family. As Professor McKenzie pointed out in his recent "On the Commons" interview, data is sorely lacking across the country, because states aren't interested in collecting it.

Bill Davis is right that the threat of foreclosure is used to extort money from the homeowners. Unlike the HOAs, banks have actually invested money in the homes, so there is a logic to bank foreclosures that does not apply to HOAs.

Every action, every demand, every fine, and every fee by an HOA corporation is backed with the threat of foreclosure. "Not every threat to liberty is backed by a government gun."

Skiba (4:48)These aren't created debts.(4:48)

In 40 seconds, Fox 7/KTBC (Austin, TX) explains how HOA corporations can create debts, using the "priority of payments" accounting practice of re-assigning payments to disputed fines and fees.

Whenever an HOA says they need tyrannical powers because of delinquencies, this should be kept in mind.

Sikba (5:35)The Federal Housing Administration has recently passed rules that require mortgage underwriting to have a maximum delinquency rate of 15%. So if a board in an association were to allow the delinquency rate to exceed 15% in a community, no one in that community would be able to obtain a mortgage.(5:57)

This is an artificial reason, not a market reason, to give HOA corporations power; especially given the "priority of payments" scam accounting system used by HOA corporations to create homeowner delinquencies where none may exist (see above).

Serious question: did the Communisty Associations Institute have anything to do with the creation of that FHA rule?

And Davis is right that single family HOAs should not be confused with condominium HOAs. This is something that the law, and even Professor McKenzie (March 12, 2004; March 13, 2004; April 5, 2010), has failed to do.

Anonymous said...

If anyone actually cares, I believe the HOA/COA foreclosure rate to be about 30% in a given locale. In certain areas of the country, I believe this rate to be MUCH higher.
Example, may be Monroe County, Pennsylvania, where the foreclosure studies have been done. I do know though, that HOA foreclosures are illegal, in Pennsylvania, yet no one appears to want to do ANYTHING to educate home buyers, or rectify the victims.
May want to Google: Monroe County Pennsylvania Foreclosure Study. I think the first was in 2003.

Anonymous said...

Skiba definitely tried to move the debate from HOA corporations (which the show was about) to condominium corporations (which were not the subject of the newsbite). Like everything else CAI engages in, it was simply an act of deception. Skiba wanted to bring up an FHA rule as a fear tactic without mentioning that it was wholly inapplicable to HOAs.

Another point of interest: Skiba has a really skewed definition of "equity". Given his former affiliation with KPMG, his definition of "equity" suggests that any corporate books that Skiba worked on while at KPMG should be examined more closely. No wonder he is no longer with KPMG and has moved to CAI - an organization filled with folks with less than scrupulous accounting and audit control standards. Indeed, CAI spends most of their time trying to eliminate accounting and audit control standards to enable wholesale bilking of both the hoa corporation and the involuntary members individually.

To the extent that there is any equity left in homes after the conduct of the banks and financial industries, such equity is being taken out of the hands of homeowners by CAI management companies and CAI attorneys - not fellow homeowners.

gnut said...

It was definitely better than Diana Olick's CNBC story at

The above story is via Glenn Reynolds. Given his libertarian leanings, I'm not sure if the segment he quoted, “People don’t understand that by failing to pay the association dues they can lose their home and be put in the street." was meant as an observation or an endorsement.

Judicial vs Non-Judicial (???)

According to CNBC, "Thirty-four states allow for judicial foreclosures by HOAs," and then cites Texas as an example!

I think NPR got it right when they reported that "And in 33 states, an HOA does not need to go before a judge to collect on the liens. It's called nonjudicial foreclosure, and in practice it means a house can be sold on the courthouse steps with no judge or arbitrator involved."

Perhaps somebody here can give the correct number? And a list of which states allow HOA non-judicial foreclosure?

And what is it with CNBC's meme in both stories that HOAs exist to "mow the lawn and shovel the snow"?