COA and HOAs Initiate Foreclosure When Dues Aren’t Paid
It’s a disturbing trend and one that isn’t tracked by any government agency. But according to at least one nonprofit research group, association boards are initiating more foreclosures than previously. According to a Houston-based nonprofit research study, association-initiated foreclosures jumped from 500 in 1995 to 2,200 in 2007.
Association boards have found themselves unwilling enforcers of properties and unpaid bills. That’s in part due to the fact that of the 300,000 homeowner’s associations in the country, over 50 percent of them face serious financial problems. So says a September 2010 survey by the Community Association Institute.
Because abandoned properties mean no one is paying the association fees, association boards are moving to force the issue legally. A number of states allow for boards to initiate foreclosure proceedings. That’s because banks, taxed with entirely too many foreclosures, are taking possession of the properties and allowing them to sit vacant.
That’s a lot of association dues not being paid.
Boards looking to improve their own financial woes could consider foreclosure proceedings as one option to recovering lost funds. The other alternative is to squeeze more money out of paying residents, which can create a larger turnover and more empty units. Instead, boards can develop a process by which to handle delinquencies.
Develop a foreclosure plan. Include things such as fines for late fee payment; lien language for delinquencies beyond 90 days; time frame for foreclosure proceedings to commence; determine who will enforce the foreclosure plan.
Adopt the foreclosure plan into the association bylaws and resident guidelines. Make sure all residents understand and sign off on the new bylaws. Spell out what fines are and when foreclosure will take place.
Communicate the new foreclosure language regularly. Remind residents that dues are the responsibility of all residents and that failure to pay will result in possible foreclosure proceedings. Use newsletters and mailed / posted notices to reach all residents.
Also, work with your association insurance broker to understand the additional risks that come with foreclosure proceedings and enforcement. Protecting the assets of the association and those of the board members should be second only to those of the residents.
Flickr photo credit: taberandrew