The Next Foreclosure Fight
Excellent news feature from CNBC on HOA foreclosures including CAI's Tom Skiba and attorney Bill Davis, who is the fellow being sued by John Carona's corporate entities (see below). Tom says HOA foreclosure should be used as a last resort, but that the power to foreclose is necessary to make sure the association is funded and the other owners don't have to pay their share. Bill says the purpose isn't to get money for the association but as an excuse to "shake down the homeowners for the benefit of the HOA vendors," mainly the lawyers and property managers.
Thanks to George Starapoli for the link.
26 comments:
Tom Skiba's point that foreclosure is necessary to protect the interests of those who pay could also be logically extended to property taxes. Ditto Skiba's point that HOA foreclosure sales are relatively rare compared to mortgagee trust deed foreclosures -- just as are assessor tax sales for delinquent property taxes.
Bill Davis however correctly points up a key difference between foreclosure sales to redeem unpaid HOA assessments and property taxes: the involvement of private HOA attorneys who have incentive to charge substantial (some would argue excessive) collection, processing and legal fees that comprise a major portion and often exceed the amount of the underlying unpaid assessments.
This is part of the price of current public policy favoring the privatization of local government in the form of mandatory membership HOAs. Since market forces cannot exercise a check on these additional amounts, they should be limited.
I agree that Bill is making a good point about not only the existence of these extra charges, but the fact that they create an incentive for the professionals to push HOA boards for harsh collections practices. Then, of course, these professionals get involved in the policy process and argue that these practices are quite virtuous.
I think association collection practices need much more government oversight. The lien should cover the assessments only, not the attorney fees and late fees going to the management company, and other such byproducts of the collections industry. The owner should be able to save the home by paying the overdue assessments. Let the professionals pursue a money judgment for whatever they think they are owed and let that be limited by public policy.
"I think association collection practices need much more government oversight…The owner should be able to save the home by paying the overdue assessments."
Or just outlaw the ability of HOAs to foreclose…period.
Fred Pilot wrote: "Skiba's point that HOA foreclosure sales are relatively rare compared to mortgagee trust deed foreclosures"
According to NPR's "All Things Considered" (June 29, 2010): "With the recession, foreclosure filings for delinquent HOA assessments in Texas have increased from about 1 percent of all home foreclosures to more than 10 percent currently, according to the industry."
I have no idea what the number is for the rest of the country, and I doubt anyone else knows, either.
Whatever that number is, it ignores the larger number of homeowners who have been threatened with foreclosure by their HOA, which "are very local and small, participants are often neighbors and hence have incentive to settle disagreements in a civil manner."
Justifying the behavior of HOAs by saying that only a small percentage of HOA collections and lien filings end in foreclosure is like saying that only a small percentage of armed robberies end up with the victim actually being shot or stabbed.
This video is from July 15, 2010 and was covered here on July 15, 2010.
privatopia.blogspot.com/2010/07/next-foreclosure-fight.html
But considering the recent blog posts about Senator John Carona's (Republican-Dallas) lawsuit against Bill Davis -- which viewers of John Stossel on Fox News and readers of Overlawyered.com will never know about, because it doesn't fit the right-wing narrative -- this is worth repeating.
There's a real easy way for state legislators concerned with HOA foreclosures to end this debate and the eternal search for scapegoats--give HOAs a "super lien" that, like most property tax and mechanic's liens, is not wiped out by a lender foreclosure. Takes the hair trigger out of the collection process because now past due assessments are secure regardless of what the lender does. Remaining owners aren't left holding the bag for the defaulting owner or for the banks which now take over the property free and clear of past due maintenance assessments. This would also give lenders the incentive to require that past due assessments be paid and kept current as a condition of a new loan. Basically a self-policing and inherently just approach to the entire assessment collection mess. Why shouldn't the equity in the property secure the cost of maintaining and repairing it?
"There's a real easy way for state legislators concerned with HOA foreclosures to end this debate and the eternal search for scapegoats--give HOAs a 'super lien'"
Has the problem of HOA foreclosure and/or extortion been solved in states where HOA corporations do have super-lien priority?
I'm extremely skeptical of your underlying (and unstated) assumption that the harsh collection practices of HOA attorneys are driven by a concern for the well-being of the community, rather than their profit-motive to extort as much money as possible from homeowners.
Do you seriously expect us to believe giving HOA corporations a "super lien" will eliminate these perverse incentives, and create a "self-policing and inherently just approach to the entire assessment collection mess"?
Where is this "self-policing" feedback mechanism and elimination of perverse incentives in your proposed solution? I don't see it.
Blogger Tyler Berding said...
There's a real easy way for state legislators concerned with HOA foreclosures to end this debate and the eternal search for scapegoats--give HOAs a "super lien" that, like most property tax and mechanic's liens, is not wiped out by a lender foreclosure. Takes the hair trigger out of the collection process because now past due assessments are secure regardless of what the lender does. Remaining owners aren't left holding the bag for the defaulting owner or for the banks which now take over the property free and clear of past due maintenance assessments. This would also give lenders the incentive to require that past due assessments be paid and kept current as a condition of a new loan. Basically a self-policing and inherently just approach to the entire assessment collection mess. Why shouldn't the equity in the property secure the cost of maintaining and repairing it?
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It's reasonable for condo equity to be used to cover the cost of maintaining and repairing the buildings since they are collectively owned by the individual titleholders.
However, many HOAs as you know are not condos but are more like private special districts comprised of detached dwelling units.
Query: Are unpaid property taxes permitted super lien status in any states?
Fred, I think you will find that property tax liens survive lender foreclosures in most every state. The same with most mechanic's liens. If HOA maintenance assessments were given the same priority, most foreclosure actions would be unnecessary since the delinquent assessment lien would have to be paid eventually, with interest, upon sale or re-financing, or simply because the lender would require it to keep the loan to value ratio within prescribed limits. The HOA's "investment" being secure and collectible in full upon sale or re-financing of the unit would greatly reduce the board's incentive to incur the expense of a foreclosure action. That is a much more rational approach than the current system and it really doesn't matter whether we are talking about condos or detached housing HOAs--the same principle applies--assessments for maintaining the infrastructure should be secured by the unit or lot benefiting from the maintenance.
Tyler Berding wrote: "If HOA maintenance assessments were given the same priority, most foreclosure actions would be unnecessary"
Most HOA foreclosure actions are unnecessary.
"What's really driving this is the dynamics of these collection lawyers who are just out to generate fees and to sell these houses off as fast as they can."
-Evan McKenzie (you may have heard of him)
"Do Homeowners Associations Go Too Far?"
ABC 20/20
April 20, 2002 (nine years ago)
While your proposal may make all HOA foreclosure actions unnecessary, it does nothing to address the perverse-incentives for HOA attorneys to impose as much in fees as possible and foreclose, especially on homes with lots of equity (e.g., Wenonah Blevins, Pamela Bernhardt, Michael Clauer).
There is no "self-policing" feedback mechanism in your idea.
Even if HOAs were given super-lien priority in states where they don't already have them, the HOA collections attorneys who profit would have the exact same incentive to engage in the harsh collections practices they currently do.
Again, behind your idea is an unstated assumption that HOA foreclosures are driven by a concern for the well-being of the community, and not the profit-motive of the industry professionals.
"it really doesn't matter whether we are talking about condos or detached housing HOAs--the same principle applies--assessments for maintaining the infrastructure"
Wow!
What about detached housing HOAs that have no infrastructure or common property?
Or where the common property isn't important infrastructure, but only "a small strip of trees"?
This tendency by the industry and legislatures to conflate condos with single-family houses is an illustration of why HOAs should be abolished, not given more power.
"You understand well enough how the Party maintains itself in power. Now tell me why we cling to power. What is our motive? Why should we want power? Go on, speak," he added as Winston remained silent.
...
"You are ruling over us for our own good,' he said feebly. 'You believe that human beings are not fit to govern themselves, and therefore --"
..
"That was stupid, Winston, stupid!" he said. "You should know better than to say a thing like that."
...
"Now I will tell you the answer to my question. It is this. The Party seeks power entirely for its own sake. We are not interested in the good of others; we are interested solely in power...We are different from all the oligarchies of the past, in that we know what we are doing....We know that no one ever seizes power with the intention of relinquishing it. Power is not a means, it is an end...The object of power is power."
...
He paused, and for a moment assumed again his air of a schoolmaster questioning a promising pupil: "How does one man assert his power over another, Winston?"
Winston thought. "By making him suffer," he said.
"Exactly. By making him suffer. Obedience is not enough. Unless he is suffering, how can you be sure that he is obeying your will and not his own? Power is in inflicting pain and humiliation."
A super lien for an HOA corporation is wholly inappropriate. These fees are not purchase money fees and the alleged debts are imposed at the whims of the HOA corporation and its agents - not the homeowner. Tyler Berding's suggestion is good only for HOA attorneys and HOA management companies and avoids the real issue here.
In fact, I think there needs to be a number of lawsuits filed against HOA management companies who deliberately interfere with homeowners actual existing contracts (not the mythical ones known as CCRs). When management companies heap unwarranted fees and then lien homeowners' properties, they are causing a breach of the security instrument securing mortgaged properties. They do so maliciously and with the intent of profiting from direct financial harm to the homeowner.
Next, the comparison with property taxes is absolutely bogus. It's one thing to have a "backwards" lien such as a purchase money lien. The HOA liens promoted by the industry, however, are 'forward liens' - an open license to unilaterally saddle the homeowners' house with "debt" that the homeowner can't say "no" to. The ONLY entity that has such power is a government and the power is a taxing power. Last time I looked, no state has delegated or extended taxing powers to private corporations.
If you want to argue otherwise, then the manner of imposing assessments, increasing assessments, collecting assessments, etc. should likewise be subject to the limitations imposed by the state with respect to taxation.
• Developers are immune from paying assessments on their lots in most states while homeowners are under threat of foreclosure. This would be an equal protection violation if the HOA were an actual government and such discrimination would not be permitted.
• HOA homeowners have little or no say in the amount of the assessments or their increases - inconsistent with the manner of taxation by political subdivisions of the state.
• There is a limit on the collection charges that can be heaped on when local government collects. HOA attorneys in Texas are well known for using the threat of foreclosing on the homeowner's home to extract $1000 $6000 $10000 or even $25,000 over alleged debts of $300-$700. The HOA industry of management companies and HOA attorneys would like to protect this extortive practice. This is their version of a "payment plan". See, e.g., Homeowner wins against HOA Important to note that during the pendency of the litigation, the CAI HOA attorney's client did not receive a dime from the homeowner despite the homeowner's multiple attempts to pay. You see, the HOA attorney's contract (posted at the link above) prohibited his client from accepting any money from the homeowner without the HOA attorney's say-so .... which was an open license to rack up even more fees while allegedly representing the HOA corporation. Of course, these types of agreements are recommended by the HOA attorney and HOA management companies that benefit from them.
• There is total amount of tax which cannot be exceeded locally. If the HOA corporation were an actual government, it would have to recognize caps. If it were a local government, it would not be allowed to "tax" at all to the extent the total limits are exceeded.
• With local government there is much more transparency. Violations of the Open Records and Open Meetings act are criminal in nature. Not surprisingly, the HOA industry trade groups love to claim that HOAs are local government" and "democracies in action" yet curiously adamantly oppose open records, open meetings, open elections, etc. in HOAs. Presumably, they really don't want homeowners to see those management company contracts.
I see nothing about Tyler Berding's proposal that would curtail the practices of unscrupulous HOA attorneys and HOA management companies. If anything, this suggestion will only result in an increase in these practices. In contrast, to Berding's proposal - how about forcing the HOA to be responsible for its own legal fees and fee pyramiding schemes from the management companies? Now that is far more likely to curtail the practices of many but not all of the bad characters. This will not solve the problem in any of the HOAs where the management company has usurped control over the collection process nor in declarant-controlled subdivisions nor in any situation where board members bear little if any responsibility for their actions. Come to think of it, killing the HOA is about the only way to put an end to these unscrupulous practices.
Great, now that the need for foreclosure has been greatly reduced or eliminated through the suggested delinquent assessment lien and more government oversight. The next question becomes, will ECHO, CAI and other industry trade groups support and lobby for its legislative passage? Or choose not to pursue or support these suggestions through legislation in order to retain the lucrative benefits of the present foreclosure and collections practices ?
…When HOAs are created to satiate government bureaucrats, rather than homeowners, it shouldn't be surprising that many HOA communities are neither well-crafted nor homeowner-friendly. But, the solution to the HOA problem is not more government intervention. It is less. The first step is for government to stop mandating and subsidizing the creation of HOAs…. Nick Dranias, Goldwater Institute
Perhaps the Goldwater Institutes conclusions recognize that more government intervention also means more industry intervention which is important to understand in order to resolve the foreclosure and collections debate and many others. As an example if California’s SB-561 is a crystal ball representing this issue. Then “the debate will continue,” considering only consumer groups like AARP, CARA and Consumers Union etc. are supporting this bill, while the industry trade groups are overwhelmingly against it. Consequently is the industry trade group’s goal, really to building better communities or gain more control and financial benefits from those who they provide services to ? SB 561 is the proof !!!
Fred Fischer at May 31, 2011 3:46:00 AM CDT re "SB 561 is the proof !!!"
I didn't know what SB 561 was about, so I looked it up, and found this.
www.hoalawblog.com/2011/05/what_is_wrong_with_sb_561_just_1.html
Posted On: May 19, 2011 by David C. Swedelson
What is Wrong with SB 561? Just About Everything
Senate Majority Leader Ellen M. Corbett (D-San Leandro) has introduced SB 561 which will, if signed into law, make some fairly significant changes to the law impacting how California community associations collect delinquent assessments. Senator Corbett has been quoted as saying that "[u]nscrupulous debt collectors are increasing the amount owed based on penalties and fees, and foreclosing on people's homes... It's a terrible practice. The penalties are just way too harsh."
Unfortunately, Senator Corbett has failed to provide any examples or proof that delinquent owners are incurring anything more then the reasonable costs and fees of collection. We really have no idea what penalties or fees she is referencing, and based on our more than 20 years of experience, what Senator Corbett is quoted as saying is not accurate."
If you read farther down the What is Wrong with SB 561? Just About Everything blog post, there's a link to a 6 page 175 KB PDF file by the same author. From that:
"This will undoubtedly result in homeowners then failing to make any payments pursuant to an executed payment plan. Many homeowners know that their association cannot continue with the foreclosure sale if all that is owed against their unit or lot are the collection fees and costs, leaving their association with no choice but to just wait until the homeowner sells his/her unit or lot (as the lien is still on the property), or proceed to small claims or superior court to collect the remaining monies owed. We know this will happen, as we have seen many homeowners try to do so in the past."
This is evidence that even though the HOAs would be able to recoup collection costs with a lien at the time of the sale, the industry is opposed to doing this because they still want the power to foreclose for attorney fees and costs.
Wow! The situation is worse than even I imagined.
Mr. Berding's proposal will do nothing to end the incentive for the professionals to push HOA boards for harsh collections practices. If he really expects us to believe that his is an "inherently just approach to the entire assessment collection mess," then he is seriously underestimating how much antipathy and distrust his industry has created among homeowners. Our definition of "inherently just" is irreconcilable with his.
Anonymous at May 31, 2011 1:18:00 AM CDT is absolutely right, "killing the HOA is about the only way to put an end to these unscrupulous practices."
In response to Fred Fischer above:
(((Great, now that the need for foreclosure has been greatly reduced or eliminated through the suggested delinquent assessment lien and more government oversight. The next question becomes, will ECHO, CAI and other industry trade groups support and lobby for its legislative passage?)))
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I can't speak for the other organizations, but the answer to Fred's question as it relates to CAI it is an unequivocal YES. In fact CAI has been leading the effort for priority lien (for assessments only) for almost 30 years.
CAI has supported the creation of a priority lien (for association assessments only) since at least 1983 when we released our first public policy on this issue. We continue to work diligently with state legislatures to implement such a structure, with recent successes in creating or expanding priority lien legislation in MD, NH, PA, RI, and NV, among others.
Is it perfect? Of course not. But as Tyler indicates the additional level of security it gives to association finances reduces the incentive to engage in costly and prolonged collection activities.
This doesn't mean that homeowners who pay their assessments in a timely manner won't be punished in the short term, making up for deliquencies among their neighbors, but it does mean that over time the association has a higher probability of recouping delinquient assessments and making the budget whole.
Assume an association’s assessment lien (condo or planned community) is a “super lien” securing payment of a delinquent owner’s unpaid assessment(s) plus allowable interest upon sale and/or re-financing of the real estate.
Will the corporate association, following a quarterly, semi-annually or annual reconciliation of operating expenses funded by member assessments, reimburse “those who pay” for those that do not pay
Will satisfying the “super lien” simply devolve into the association’s newly “found money (OPM)?”
Given CAI/Skiba’s perennial lament re the injustice visited upon dues paying members by the association’s “scofflaws,” will, in addition to protecting the “HOA’s ‘investment,’” associations protect (reimburse) the individual members’ additional pro-rated investment in the “scofflaws’” delinquencies?
"CAI has been leading the effort for priority lien (for assessments only) for almost 30 years."
"CAI has supported the creation of a priority lien (for association assessments only) since at least 1983"
But when you use the priority of payments scam to artificially create delinquencies in association assessments, your reassurances become worthless.
I normally don't respond to comments from Anonymous sources as anyone who are so afraid or insecure to stake a claim to their own thoughts and opinions isn't generally worth the time.
But, there are a couple of interesting points here nevertheless.
First, on whether associations would/could reconcile lien payments when eventually received and rebate them to owners who carried the weight when others were not paying. I think that this is emotionally a good idea but probably not practical. While most priority lien laws provide for 6 to 12 months of back assessments, it can take years in the current market for a home to sell and for those funds to be recouped. Since almost all associations budget for a net break even (i.e. no net surplus)from operations each year those recouped funds generally and most practically applied to reduce potential future assessment increases (which most boards are very sensitive to) and/or fund (generally insufficient) reserve accounts. In either case the entire community reaps the benefits.
Regarding the "priority of payments scam" The commenter apparently fails to understand what CAI is and does, as well as is unable to read the very 2 sentences they excerpted from my previous comment. First, CAI's public policy and the bills we have championed around the country specifically limit priority liens to assessments only, not fines, not interest, not collection fees, not any other cost. In fact, Tyler Berdings earlier point is that with the security of the priority lien the association is given an incentive NOT to pursue formal collection action and thus incur additional related expenses. (And somewhere along the way someone should explain why a deliquient owner should not be responsible for the costs of collecting the delinquincy they have created and are responsible for.)
Second, the phrase "when you use the priority of payments scam" intentionally implies that CAI somehow collects association assessments, charges fees, etc. Of course that is totally false and intentionally misleading. CAI does none of those things and through our education programs teaches none of those things. But I have to admit it is an effective way to hurl an untrue fact-like statement to make an emotional argument when you don't have any other logical or factual leg to stand on.
Tim Skiba wrote…"First, CAI's public policy and the bills we have championed around the country specifically limit priority liens to assessments only, not fines, not interest, not collection fees, not any other cost. In fact, Tyler Berdings earlier point is that with the security of the priority lien the association is given an incentive NOT to pursue formal collection action and thus incur additional related expenses. "
But Mr. Berding's proposal is flawed because even though an association may not have an incentive to pursue harsh punitive collections actions, the HOA property management companies and HOA law firms retain the same incentives to extort as much money as possible from the home owners.
Would you be willing to support legislation that prohibits
(1) the power of an HOA to foreclose on a homeowner and
(2) use the "priority of payments" scam which applies a homeowners payments to disputed fines and fees in order to create "delinquent assessments"
in exchange for an HOA "'super lien' that, like most property tax and mechanic's liens, is not wiped out by a lender foreclosure"?
If so, I think you will find that many of your harshest critics would actually support Mr. Berding's proposal.
Unfortunately, Mr. Berding put forth his proposal in bad faith; i.e., the HOA gains more power and gives up nothing. What kind of reaction did the two of you expect?
Tom Skiba wrote..."The commenter apparently fails to understand what CAI is and does,"
As Professor McKenzie said in an interview with Shu Bartholomew ( OnTheCommons.net April 27, 2007 at 15:00 min. to 17:00 min.), the CAI lies about what it is and does.
Regular readers of this blog knows exactly what the Communisty Associations Institute is and what it does.
Tom Skiba wrote..."And somewhere along the way someone should explain why a deliquient owner should not be responsible for the costs of collecting the delinquincy they have created and are responsible for."
Because in the real world
(1) the collection costs imposed by your members are extortionist, unconscionable, and unreasonable, and
(2) "delinquency" does not necessarily mean past-due assessments, but unreasonable and extortionist fines and fees imposed by your members used to create "delinquency" out of thin air. See "priority of payments" scam accounting system that is standard practice in your industry.
Foreclosure is just a symptom - albeit a very serious one - of the fundamental problem that an anonymous poster mentioned earier: that there needs to be more state oversight of HOAs. Far more.
The current governing structure of amateur yet all-powerful boardmembers who in many cases don't know what they're doing, don't know the law, and who may also be motivated by petty, vindictive, or other self-serving urges, makes no sense.
Compounding the problem is that these boardmembers get advice from managers and others who have self-interests of their own.
The certainly is no "perfect" system, but the one we're suffering under now is far from that.
THE ABILITY TO FORECLOSE ON REAL PROPERTY FOR GOODS OR SERVICES IS RIDICULOUS! HOA FORECLOSURE IS THE BIGGEST SCAM SINCE PREDATORY LENDING! TRUE STORY UNFOLDING DAY TO DAY. WHILE HOA PRES. IS PUSHING FORWARD FORECLOSURE SALES AT PENNIES ON THE DOLLAR-BRINGING DOWN PROPERTY VALUES FOR EVERY HOME IN THE NEIGHBORHOOD-HE TAKES A NEW LOAN ON HIS OWN HOME FOR MORE THAN HIGHEST MARKET VALUE! BUT THEN, IT IS FOR THE GOOD OF THE COMMUNITY AND HIS IS OF COURSE THE CASTLE! CERTAINLY HE IS KING!
NO MORE TRUST, NO MORE RESPECT, NO MORE ABUSE, NO MORE MANIPULATION, NO MORE FINES, NO MORE VIOLATIONS, NO MORE INTIMIDATION, NO MORE CONFLICT OF INTEREST, NO MORE......I WILL BE GLAD TO BE OUT, I HATE THE ASSOCIATION AND WILL NEVER BE TRICKED AGAIN! TRY SOME OTHER SUCKER!
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