The growing problem of delinquencies is a very serious problem that is starting to affect almost every Home Owners Association (HOA) in the country. And unfortunately, the problem gets worse every day.
At the Kensington of Royal Palm Beach condominiums on Florida’s east coast, 70 percent of the owners are in arrears on their association fees. Many other associations have delinquencies in the 40-50% range. These fees typically pay for insurance, maintenance, landscaping, some taxes, staff, and energy. Clearly when not everyone pays their dues, which represent an equitable sharing of costs among all the owners, financial problems will ensue. Usually that means the remaining owners in the community association have to pay more to keep the ship afloat, a serious hardship. Many other problems spiral out from that.
Delinquencies can come in many forms. Owners who are in default on their mortgages typically stop paying everything, since they have nothing to lose. Banks often stall foreclosures, possibly to avoid having to pay the HOA fees once they retake title. In some cases banks don’t have to, or refuse to pay all of the arrears. Owners who are in financial trouble simply stop paying, since the HOA Board has limited recourse. And in yet another scenario, owners rent out their condos/homes to collect the rental income, but refuse to pay the HOA dues. In all of these situations the result is dire for the community association. Money becomes short, and the increased or advanced payments made by the remaining members can drive them into default or non-payment. Meanwhile employees, services, and amenities have to be cut to remain solvent. The spiral continues as homes become difficult to sell and prices plummet.
Some states are working on remedies to help these associations. One court in Florida awarded a blanket rule that allowed the association to collect dues directly from renters, thus bypassing the owners. Other legislation might impose more restrictions on banks to collect more money. The ultimate delinquent assessment collection tool is foreclosure, but this is a radical step with many complications (chief of which is many delinquent owners are already underwater; there is no equity left over for a second tier creditor like an HOA).
Condo Associations turn to Receiverships to Collect Rent
Seeking Solutions to Condo Delinquencies
Lenders Should Pay Up
The Great Foreclosure Debate
Community Associations Network (whose excellent newsletter provided all of these references)