While foreclosures are falling on a nation-wide basis, one category that is an exception is foreclosures filed by homeowners’ associations against members that are delinquent on their fees. And on a more general basis, due to defaults and slow payments, in aggregate, reserves of HOAs have fallen and many have scrimped on services and maintenance as a direct result of the housing bust. Foreclosures by bank servicers has produced an adverse feedback loop: homes in foreclosure sit vacant, often for lengthy periods, and they don’t pay fees to the HOA. That produces shortfalls in the HOA’s revenues versus their needs. Thus when a homeowner now goes into arrears, the HOA has less ability to cut them slack and work out a payment or catch-up plan.
This phenomenon is broader than you might imagine. Homeowners’ associations aren’t just a fixture of condominiums in Sunbelt states like Florida and Nevada. 63 million Americans live in residences that are in HOAs, and 80% of new homes sold are subject to these arrangements. They aren’t just a way to pay for common services in multi-family housing; they are increasingly an example of privatization of formerly public services. Asa new Reuters story explains:
Homeowner associations first took off in the 1970s as local governments looked for a way to offload costly services, such as snow removal and road repair. Municipalities have encouraged their growth since through tax incentives and zoning laws… Read more: