Ponzi Scheme?
"So how is this similar to the plight of community associations? Simple. The developer of a project creates a reserve program based on the false assumption that most components of a building have an infinite service life and will never need repair or replacement. The early owners (investors) pay into the venture (community association budget) at lower than necessary assessment rates. That not only attracts buyers to the initial sales offering but also, in turn attracts future buyers. Eventually the investors who are the owners when the underfunding is discovered are stuck with not only their share of the bill, but also the shares of all of the prior owners who underpaid their assessments for so many years and then sold off their interests. Not exactly a “Ponzi” scheme, but close."
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Tyler Berding shows how the reasons for recent municipal bankruptcy filings are structurally similar to the financial time bomb that is built into many community associations--a must-read. Thanks to Fred Pilot for the link.
3 comments:
But "HOAs preserve value" - or so we are constantly told by spokespersons from the HOA industry. Yet incredibly this industry can't produce any empirical evidence to support these claims that are made in virtually every state legislature by lobbyists for the HOA industry.
Whatever economic evidence gets produced tends to only refer to sales price without reference to cost of improvements added, assessments, special assessments, and all the various fees that the HOA vendors abscond with during the period of ownership and at the time of sale.
Of course you need to also factor in some economic loss for the misery caused by management companies, HOA attorneys, and boards attempting to intrude into every aspect of use and enjoyment of your property as well as the constant threat of litigation. Don't forget to assign some level of economic loss for the negative health consequences that living in such an environment imposes upon owners, their children, and other family members. No telling how negatively such a home environment has impacted owners' workplace either. Of course, selling HOA burdened property isn't necessarily very easy either given that a lawsuit provoked by the management company or HOA attorney may result in virtually every property in the subdivision becoming unmarketable at any point in time. Care to put an economic value on that?
The "carrying costs" are what the HOA vendors would prefer gets ignored in any analysis. Although Berding does point out the carrying costs - he does so in a manner that blames the owner. The reality is the nonsense promulgated by industry that "HOAs preserve value" is a complete lie and is wholly incompatible with the proposition that the owners must pay all these additional assessment and yet somehow be able to recover that from a sale under the faux theory that HOAs preserve value.
The obvious is in front of one's nose. HOAs do not and never have preserved any "value" for the owners of the property. HOAs preserve "value" for the VENDORS.
I am reminded of a comment that Tom Skiba made on a CNN interview a few years ago. He claimed that owners that don't pay "their" assessments are taking the equity away from the owners that are. If that is the case then shouldn't the conclusion be that the HOA is the entity taking equity from every owner? Will we hear Tom Skiba admit that?
Skiba would not want to have you offset the sales price by the carrying costs of ownership (including assessments, special assessments, inspection fees, compliance fees, transfer fees, enhancement fees, architectural committee fees, attorney fees, etc. ad naseum) These days (and for several years) you can't justify the "preservation of value" argument even if you ignore all these other costs - assuming you could unload the HOA property to begin with.
> No telling how negatively such a home environment
> has impacted owners' workplace either.
The past 3 years of dealing with my HOA, including the time spent on 3 separate law suits, has effectively ended my career.
But the HOA attorneys got paid! The existence of the HOA corporation preserving value in your home for them!
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