Wednesday, August 19, 2009

HOAs Get Creative To Beat REOs

Image ID 1191114 by Stock Exchange user mzacha image courtesy of StockExchange user mzacha

Homeowners Associations (HOAs) get knocked about pretty badly when a foreclosure happens in their association. They lose a good deal of money they budgeted to collect.

1. Typically the homeowner losing their home stops paying the regular HOA dues long before they actually get foreclosed on. Buh-bye money.

2. Post-foreclosure, banks don’t pay the HOA during the many months they own the property. Buh-bye mo’ money.

3. Usually the banks pay the back-owed HOA dues when they finally sell the home as an REO. So the HOAs get some money back there. Hello cashola! But we’re still missing a number of months of regular dues.

I served on my HOA’s Board and can vouch that many (most?) HOAs run on very slim margins indeed, and none are making a profit.  Lately I’ve noticed HOAs getting creative to make up some of that lost revenue.  Can’t really say I blame them: it costs lotsa green to maintain green lawns, common areas, mailbox depots and tot lots.

Earlier this year, a buyer client of mine at Landmark Towers (about which we’ve written extensively) paid a total of $600 in extra HOA transfer fees at closing. The detailed breakout of fees included: rush order fee $100, REO fee $100, disclosure on REO $100, and a couple 2-3 other items at $100 a pop. Wow!

Today I got an HOA transfer fee disclosure statement where the HOA is charging $3.50 for providing the buyer with a coupon payment booklet. The mind boggles.