Sunday, September 05, 2010

When the HOA forecloses: This isn't like a tax assessor's sale

When paying the mortgage is not enough

When Becky and Chris Hobbs' home was foreclosed on and the family evicted from it this spring, the couple had not missed a house payment. They had, however, not paid their homeowners association dues. "I had no idea that anyone other than your mortgage company can evict you from your house," Becky Lew-Hobbs said. "It's absurd to me that one late payment can evict you."

Skipping out on homeowners association dues can have extreme, and often unexpected, consequences. Increasing numbers of the neighborhood-based groups are turning to foreclosure proceedings to collect on overdue fees, which the associations use to maintain community clubhouses, pools and the like.
People who have suffered a big loss of income in the economic contraction may figure that as with delinquent property taxes, they can settle up with the assessor's office when their financial situation improves. Wrong. HOAs come knocking years before the tax man for significantly much smaller sums. Since HOA assessments are considered private and not public obligations, private attorneys play the role of tax collectors. And they charge big fees for doing so, often multiples of the underlying amount owed. Good work if you can find it or an appalling scam -- depending upon your perspective.


Anonymous said...

"Since HOAs are very local and small, participants are often neighbors and hence have incentive to settle disagreements in a civil manner."

-Independence Institute
"Free-Market Alternatives to Zoning"
February 28, 2009

From the News Observer story:

"Hobbs, her husband and their two young children were evicted from their home in the Village Lakes neighborhood, a 380-home subdivision in East Raleigh off New Bern Avenue, in April, after a $137 unpaid bill blossomed into more than $5,500 in late fees and legal fees from the homeowners association's lawyer."

"Court records show that since 2007, the neighborhood has started foreclosure proceedings on 23 other residents who owe from $115 to $478."
[23 is 6% of 380 homes.]

"Harden, a single mother of three, had lost her job and seen her income plummet to a third of the $70,000 she had made as a manager in a health care company. She was in the hospital recovering from surgery when she learned she owed her HOA $130, and that lawyers were going to foreclose on her home of four years because of it. Harden said the lawyers' fees brought the total she owed to $1,500."

Anonymous said...

In my experience and opinion:
They make up assessments, and file false, fabricated charges (lawsuits) in the courts. Even if they do not have the authority, own, or maintain the property you own, your association ( a separate association) does they lie to courts and send out bills, I believe to cover what they have taken (stolen), and/or to provide jobs for their friends. The HOA LAWYERS LIE! These, criminal individuals conspire with even ONE BOARD MEMBER, to carry out personal vendettas, target, terrorize vulnerable populations, for foreclosure. Legal, or not! They (HOA attorney and/or board member) tell you to do something, (how something has to be done, carried out, according to your CC&R's) and then the SAME ATTORNEY TURNS AROUND AND SUES YOU FOR WHAT HE and the BOARD MEMBER TOLD THE HOMEOWNER HAD TO BE DONE. In fact, the homeowner only questioned the correct way, given they (HOA Attorney and Board Member) were trying to get the homeowner to do exactly what they had said the homeowner could not do. Thelied to the courts, filed a FABRICATED LAWSUIT, ALTHOUGH THEY HAD NO OWNERSHIP RIGHTS, THE HOMEOWNER HAD NO CONTRACTUAL OBLIGATION TO THE HOA FOR WHAT THEY WERE CLAIMING....the lies, lies, lies and all the time the homeowner was being advised the issue was going to be thrown out of court. The homeowner believed no different! Little did they know the HOA Attorney, whose salary this homeowner had been paying for nearly 12 years, was putting fabricated excessive, excessize liens against the property. The amount was nearly 15 + times the amount they calimed in the fabricated lawsuit. They moved to foreclose.. The homeowner had no idea...There is more to this absolute horror, this miscarriage of justice. By the way, this alll took place in a state where HOA/COA/CID foreclosures are ILLEGAL: PENNSYLVANIA! Ask any Pennsylvania elected official. Ask the Pennsylvania Attorney General. This an outrage and the victims deserve to be rectified!

ps. I should not fail to mention all this homeowner did for the community. They did an outstanding job of helpig all they could. Never turned their back when a neighbor need help, or when forced to take on running their board due to the fraudulent and illegal actions of a preceedding board president/attorney. Personally getting things repaired, personally helping other homeowners pay their bills, while trying to tollerate some horribly, destructive neighbors (owner and tennant) who made it, at times, a daily mission to cause damages to this family's home and property, terrorize their family, friends, and friends of their child, cause terrible unnecessary disturbances and disruption of their life. The neighbors from _ _ _ _! HOW CAN PEOPLE BE SO HORRIBLE???

Fred Fischer said...

In this present housing market with many developments having 30% and more in delinquent association payments. Is this exorbitant fee service provided by attorney’s really good business judgment, smart or wise for the housing association itself ? After all if the housing association forecloses do they really win since they may be getting a property with little or no equity and most important with no buyers in this present market. So who will be paying the assessments till the property sells and how long will that take ? In addition will new prospective buyers be willing to pay the ever increasing transfer and other fees aimed at recovering past unpaid assessments ?

Consequently is this foreclosure game really good business judgment for the housing association ? Or in the best interest of the service providers like the attorneys who share little or no risk or economic losses with their clients. Since the housing association inherits all the risks and economic losses exclusively.

If a member can't pay $150.00 at some point then how can increasing it $1,500 make it more likely to be paid or not ? So who is really benefiting and who isn’t ?

gnut said...

> If a member can't pay $150.00 at some point
> then how can increasing it $1,500 make it more likely to be paid or not ?
> So who is really benefiting and who isn’t ?

Read Donna Berger's "Time To Tighten Up Your Current Collection Policy" (April 01, 2010) and "Spend $$’s to Recoup More $$’s (April 02,2010).

In "Spend $$'s" she actually recommends

"Adding late fees (if you don’t already have them) and increasing the amounts you can charge for late fees and interest to the “highest amount permitted by law”. Some documents only allow you to charge interest and late fees in amounts much lower than what you can currently charge under the statutes"

because tacking on those fees, while forcing the individual homeowner into deeper financial trouble, is of great benefit to her and her law firm, which will tack on thousands of dollars in additional legal fees.

As regular readers of this blog know, HOAs have long ago devolved from being something that was supposed to benefit individual homeowners -- if they ever did, but as libertarians and HOA lobbyists claim they still do -- into being a feeding trough for parasitic tort lawyers and professional property management companies, with the individual home owners being farmed-out by their Boards of Directors as the food-source for the vendors. Given the moral hazards and perverse incentives inherent in the system, the real world results of private corporate government cannot have any other outcome. Simply putting "the right people in charge" will not make HOAs work any better than Communism.

Libertarian T.V. show host John Stossel recently wrote that "If private companies don't do things efficiently, they lose money and die. Unlike government, they cannot compel payment through the power to tax." Not only is that a lie, but we have seen what happens when private companies do have the power to compel payment through the power to tax.

Given the damage that has happened to the real estate market, the HOA vendors -- the parasitic lawyers and property managers -- are behaving in an economically rational manner to farm the homeowners for as much as possible, at the expense of their HOA corporate clients -- before there is nothing left to take. It may not be sustainable, but HOA extortion rackets are an incredibly efficient machine, and "efficiency" is the only result that some people care about.

The problem isn't whether we have enough capitalism or communism, it is, as George Orwell wrote:

The central problem — how to prevent power from being abused — remains unsolved…‘If men would behave decently the world would be decent’ is not such a platitude as it sounds.

And HOAs provide plenty of examples of abuse of power that modern day privatopian Walter Durantys are more than willing to gloss over in order to promote their pet theories of privatized corporate communism.

Anonymous said...

Often multiples? Try this article:

Homeowner beats HOA lawyer in court

Note that the HOA itself did not get paid for years while the HOA attorney was trying to shake down the property owner. Breach of fiduciary duty to his client? This is standard operating procedure for HOA attorneys.

For once, the court said 'enough'. You can't demand $20,000 over a $300 assessment. The HOA ended up being found liable for their attorney's unscrupulous business practices to the tune of about what the HOA attorney was trying to extract from the homeowner to begin with.

Anonymous said...

Ahh. This is why HOA attorneys and HOA management companies target homes with more equity in them - typically senior citizens. The threat of the loss of equity is how the management companies and HOA attorneys extort much larger fees from homeowners to the detriment of both the homeowners and the HOA client of the management company and attorney.