Homeowners associations dip into savings to pay the everyday bills
The Post and Courier
Steve Peck, president of Community Management Group on James Island, has seen fewer homeowners make monthly payments on time to their neighborhood associations.
AP
A rising rate of home foreclosures, which has nearly doubled over last year in the Charleston area, has made it tough for some homeowner associations to collect monthly dues, leading some to dip into savings to pay operating costs. The sign outside this California home indicates that its previous owners defaulted on their mortgage loan.
The latest evidence of economic hardship can be traced to a bare patch of dirt outside a West Ashley condominium complex.
The community of about 150 individually owned units, which previously were rented as apartments, has had a tough time scraping together enough money to pay for pine straw and flowers outside its modest entrance. In fact, it's been more than a year since fresh straw has been laid down.
"It's starting to look bad," said Debbie Inman, who helps manage the community through her North Charleston-based company, Capital Group Management and Consulting.
Across the country, homeowners associations, or HOAs, have started to see the trickle-down effect of a sluggish economy. Charleston is no exception.
Some communities are having a harder time wresting monthly payments out of homeowners who are either facing financial hardship or apathetic to their responsibilities to help maintain the pool and other common areas. As a result, some associations have had to dip into their savings to pay for everyday costs. And a few have cut back on services by, for example, electing to mow the grass less frequently.
Other association leaders, whose organizations are financially sound today, are casting a cautious eye toward the future, knowing that they, too, might have to come up with creative ways to encourage homeowners to pay up.
"The HOA bill is the last bill that anybody pays," said Steve Peck, president of Community Management Group on James Island. "You're going to pay for cable TV and a night out on the town before you write a check to a homeowners association."
Rising delinquencies
There aren't solid numbers available about how many Charleston homeowners are paying their dues on time — or not. So evidence of rising delinquency rates is anecdotal.
One 198-home neighborhood in Hanahan saw its delinquency rate double this year compared with last year's rate, according to statistics from Inman's company.
Another townhouse development in West Ashley had 21 late or missing payments last year and another 45 this year.
Peck remembers a few years ago when many neighborhood associations easily collected 100 percent of their assessments. This year, across his company's 67 neighborhoods, he's seeing a common delinquency rate of either 5 or 6 percent.
"I've been doing this for 17 years, and I have never seen this percentage of delinquency," he said.
Homeowner payments are meant to cover neighborhoodwide expenses such as insurance, landscaping in common areas and the electricity that powers the street lights. Some communities have pools to clean, docks to maintain or elevators to service, while others have only a small area of common space that requires an occasional mowing.
Paying for those services might be less rewarding than other expenses, but Sandy Hightower, a resident and architecture board member at Eagle's Landing in Hanahan, says that maintaining a community's appearance helps properties retain their value in a real estate market where home prices are sliding.
"It's one more thing that keeps part of their value there," she said.
For communities that have pocketed fewer payments than in past years, Inman has tried to find creative ways to cut expenses. For example, she's double-checking to make sure the association isn't paying for unnecessary features in its insurance policy.
At one small Summerville community that Capital Group manages, residents have begun planting the flowers themselves. And Inman recommends that homeowners associations plant perennials flowers that bloom each year instead of ones that die off after each summer season.
"Then you can basically put in one tray of plants, and they're not $500 worth of plants that are gone after a few months," she said.
At Bayview Farms on James Island, the association's financial stability stems, in part, from its community pool.
The modest neighborhood of about 278 homes recently finished paying off the loan that paid for the pool, said Michael Hepner, HOA president. The extra money that the association still collects will help pay for dues that were lost to a handful of foreclosed homes.
Gas factor
Aggravating the overall problem is the rising cost of basic services.
Elevated fuel prices have pushed up the cost of landscaping and other services, such as property management itself, that require gas-powered tools and regular on-site visits.
Just last week, Wallace Jack of the Grand Oaks Property Owners Association in West Ashley got a letter from his association's management company saying that its service expenses are going up 2 percent. The increase was blamed on gas prices.
"It's a small amount, and you expect some growth each year," Jack said. "We usually try and budget a little extra."
Luckily, the price of repairs has fallen slightly since home-building activity has slowed, Peck said. With more contractors free to do the work, bid prices steadily have lowered.
After realizing that some of their neighbors have failed to pay association dues, some residents have gotten creative, Peck observed. They've approached him with suggestions that range from posting delinquent payers' names on the association Web site to putting the delinquency list up "in the window of the local Bi-Lo."
Unfortunately, an association that releases that information risks facing a privacy lawsuit, Peck said.
Instead, Mike Parades of Sentry Management Inc. applies tough legal action to the problem.
His company, like many other management associations, frequently files legal liens against property owners who don't pay. Often, homeowners will pay up when they risk losing their homes or having them encumbered by a legal judgment.
Parades says that delinquent payments are less of a problem if collections are strictly enforced.
In some cases, filing a lien works, Peck said. But these days, some homeowners, especially those who bought their properties at the peak of the real estate market, are having trouble paying their mortgages, too.
Recovering money when a home is in foreclosure is tougher since banks are first in line to collect any profit from a courthouse sale.
"The ones that can't pay their mortgages ... generally speaking, it's extremely rare that we'll recover money for the HOA," he said.
Reach Katy Stech at 937-5549 or kstech@postandcourier.com.
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Comments
hoagov (anonymous) says...
Most people did not, and still do not, realize what they bought into when buying into an HOA. They bought into a private government that runs a communal neighborhood. That is, all upkeep comes from ALL members paying fees for the benefit of the community, even if it does not directly affect their private roperty.
Failure to pay means loss of home in foreclosure -- their home serves as collateral for the survival of the commune, the HOA.
For more info, see http://pvtgov.org
September 5, 2008 at 7 p.m. ( permalink | suggest removal )
hoagov (anonymous) says...
Many homeowners swear by the HOA -- what a great concept. Reformists are told you have a contract, live up to it!
Well, you have a contract among a relatively small number of people, whom the HOA never vetted or checked their financial status. Live up to the contract and dig in and pay your share of the communal financial pot. And that includes money your "comrades" can't pay. Live up to your contract!
September 8, 2008 at 10:13 a.m. ( permalink | suggest removal )
RTC (anonymous) says...
Our neighborhood did not have an HOA when we chose to build there. That is one of the reasons we picked the neighborhood. Several years went by before two women decided we had to have an HOA. There was a meeting where people could vote for or against it. We voted against it, because we did not want to be ruled over by these people.
Covenants are okay to keep a neighborhood from becoming run down, but these people believe they have the right to dictate to every resident how to live their lives.
After demanding to see a financial report, we questioned what miscellaneous expenses were supposed to mean. They said for street parties, benches, etc. Nothing was itemized, and we don't feel that we should be paying for parties or anything else that we did not agree to pay.
I might add that we have no amenities such as a pool or tennis courts to use or maintain.
Many of these HOA's are crooks, and I have to wonder how many write checks for their own personal use and call it "miscellaneous" funds.
September 8, 2008 at 10:55 a.m. ( permalink | suggest removal )
bbbox (anonymous) says...
I've worked with property management and HOA's before - be careful of random fees. They're not in the business to loose money.
September 8, 2008 at 11:02 a.m. ( permalink | suggest removal )
mkris (anonymous) says...
HOAs are great things as long as there are great managers and boards. I say go after the non-payers, slap a lien on thier properties and foreclose if you have to. I bought in a condo unit to keep the broken-down cars out, the landscape maintained and the exteriors fixed. If you cant afford it, sell.
September 8, 2008 at 11:11 a.m. ( permalink | suggest removal )
Community_Management_Group (anonymous) says...
Living in an HOA certainly isn't for everyone. We talk about this often among staff. We have 36 people working with CMG and only about 1/3 choose to live in communities governed by an Association. At the seminars we give our communities I usually ask members by show of hands how many have lived in an Association and of those how many really like the concept. It's somewhere about 70% who like the concept and it varies by community and by demographic.
All owners sign a document at their closing (some at the time of contract) which formalizes their agreement that they have received the Covenants, read them and agree to abide by them. This doesn't mean that they all like the idea. I haven't met a person yet who liked every rule and requirement.
There are certainly a number of trade offs to living in an HOA, one of which is a mandated Assessment (some say "dues") and as with any group of people, there is a small percentage that will refuse to pay. Volunteer Boards are in an increasingly uncomfortable position that puts them at odds with neighbors. They not only have to enforce Covenants but they must collect Assessments. Professional management puts a bit of a buffer in the process and lets a manager "wear these black hats."
A property deed in a community with an HOA creates what is in effect a lien and as Mike Parades said quite well, well-managed Association will have a strong and prudent collections process. These must follow through to formalizing liens and into a legal process that can (we all hate that it gets to this now and then) actually foreclose on the lien and force the sale of a home.
Many Associations recognize that in this "new economy" there will be a proportion of people who will not pay and they budget a line for bad debt just as they do flowers and pool maintenance. A 5% delinquency is comparatively good now. Some Associations are coming from self management to professional managers with a 25-40% delinquency rate.
I hope folks can empathize with their volunteer Boards and the effort they put into protecting, preserving and enhancing property values. When you meet one, please thank them for their committment they put a lot into it and it's thankless work.
September 8, 2008 at 11:17 a.m. ( permalink | suggest removal )
coolfreaknbeans (anonymous) says...
I picked my neighborhood because it had an HOA.Well they are a bunch of slackers.I deal with exactly what I was trying to avoid.These freaking rednecks moved in across the street.Their kids roam all over,as does their pitbull.They have an approx 16ft long hauling trailer in the driveway,the guy will park his big Bubba 1980 suburban and trailer on a SOLD lot getting ready to be developed-in short they act like they own the place.The HOA is supposed to have someone drive through every week.Well I live on a culdesac and have NEVER seen them drive by once in like 8 months.I'm fed up.What in the hell am I'm paying for?We have no park or pool.
September 8, 2008 at 11:20 a.m. ( permalink | suggest removal )
coolfreaknbeans (anonymous) says...
Community_Management_Group-Thats what baffles me.Before I even signed the offer to start construction I signed the HOA agreement.What were some of these people thinking?They signed the same crystal clear agreement I did.I understand accidentally breaking some obscure rule due to ignorance.But for the love of God some of my neighbors are absurd!
September 8, 2008 at 11:28 a.m. ( permalink | suggest removal )
RTC (anonymous) says...
cool, we have the opposite problem. Our HOA knows everything that is going on, and some of the board members run their mouths to other residents about certain individuals. I don't want a trashy neighborhood, but I also think that these people need to act in a more professional manner and need to be held accountable for their actions.
It is really funny that they can break the rules, but no one else can.
You cannot run a business from your residence, yet the HOA president's husband runs his handyman services from their home. How do they expect others to obey the rules when they don't?
We never signed any contract or agreement, yet we are expected to pay a yearly fee, because they claim that they had enough votes to start an HOA. We never saw proof that they collected the required amount of votes.
These people need to be looked into, and I think that this would be a good thing for the PnC Watchdog to investigate.
Many HOA workers do a good job, but there always going to be those that abuse their power.
September 8, 2008 at noon ( permalink | suggest removal )
coolfreaknbeans (anonymous) says...
The power of our HOA has yet to be turned over to the residents in my neighborhood.(we aren't full enough yet)I swear it seems like all of the people I speak to have HOA issues.Either they are militant,gossiping freaks like in your neighborhood or slack like mine.It just makes me question why in the hell am I paying so much a year.Like I said before we have no park,pool,playground,clubhouse,basketball or tennis court...nothing-not even effective rule enforcement.I have spoke to others who pay equal or less than I pay and they amenities.
September 8, 2008 at 12:44 p.m. ( permalink | suggest removal )
iceman1978 (anonymous) says...
The homeowners group where we are is pretty good. The main entrance to the subdivision is always well kept and we have a gazebo. Towards the middle of the area is a playground that was built next to a huge oak tree. I wouldn't mind it if we could get one of the lakefront lots that's still empty and put a large park with a neighborhood swimming pool.
September 8, 2008 at 12:53 p.m. ( permalink | suggest removal )
RTC (anonymous) says...
hey cool, we found out at the last meeting that the builder has yet to turn power over to the HOA. So all of their threats of fines and liens against homeowners is just blowing smoke. This neighborhood is over 15 yrs. old, but it was built in 3 phases. We are in the last phase. Each phase had a different set of covenants, and we got copies of all three. They need the builder to turn over power to the HOA, and then they want to combine all of the covenants. Supposedly they can't add or change any rules without the vote of the residents.
It's a real mess, and I like my house, but I am sometimes sorry we even built here.
Another thing that I want an answer to is why are they always saying that they are authorized to fine residents or to do such and such. My question is, who gives them this authority? There are no federal, state, or local entities that govern them. So, are they just their own little quasi governments that make their own laws?
September 8, 2008 at 2:02 p.m. ( permalink | suggest removal )
Community_Management_Group (anonymous) says...
Coolfreak - your Board should be able to provide you a budget. You may not necessarily have a personal say in what is in it and you may have more questions than answers upon reading it...and some Associations require that you go to the principal office of business to review the books.
We recommend all property owners with concerns get involved - at least in a Committee role such as Finance, Covenants or Grounds. And of course, get good management. There are plenty of good managers in Charleston.
To the points about people not wanting to follow rules to which they signed with their agreement, the limitation of it all is that an HOA can't legislate common sense. That cuts two ways - to the writers of the rules who should make them reasonable and enforceable and those who ignore them can usually get fines that are lien-based. Ignoring notices and fines is one tactic that we see which to me defies good sense.
To those who want Developer turnover soon: Be careful what you wish for: If/when the builder/developer hands over the HOA, they also take back their deep pockets. Few HOAs have "fat" in the budgets and developers often pay high subsidies to keep them afloat. No developer subsidy can translate to Special Assessments to owners. Up-side is you can set your own budgets and with votes, (it's tough to do) you can amend unpopular Covenants.
September 8, 2008 at 8:39 p.m. ( permalink | suggest removal )
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