Friday, April 23, 2010

HOA tries to collect fees after man loses home

The Arizona Republic ran a hot-button story today with a zinger of a headline: HOA still seeking fees despite man losing Chandler home.
A former Chandler resident is learning the hard way that you can't walk away from homeowners' association assessments even if you've lost your home.

In my opinion the paper does a lousy job of making the key point: a bankruptcy does away with a homeowner’s mortgage debt, but it does not strip that homeowner of the ownership of the property.

What does this have to do with HOAs?

Lately banks are sometimes just really slow to file foreclosure actions after a bankruptcy is finalized, leaving homeowners and HOAs in confusion about who owes what to whom.

HOA dues that were accumulated before the bankruptcy action are wiped out by it. But HOA dues that accumulate between the bankruptcy action and the foreclosure auction sale are still the homeowner's responsibility.

Imagine a typical HOA. They have a community park or a Tot Lot, community mailboxes, maybe a pool or rec center. They collect dues from the homeowners to maintain these public spaces. See all those little green dollar signs? Those are homeowners paying their monthly HOA dues.

Tinyville HOA paid up

It all goes along really well, unless…

Tinyville HOA missing money

… a homeowner stops paying their HOA dues.

The Tinyville HOA is now collecting a fraction less money each month. But they don’t get to stop maintaining a portion of the mailbox area, or a corner of the community park, or one lane in the community lap pool. In this way, HOAs are not unlike families: less income, same amount of bills.

Often the HOA board makes the decision to hire an attorney to file judgments against homeowners who have a lot of unpaid dues.

It’s hard to blame homeowners who stop paying their HOA dues: times are tight, jobs are scarce, money is in short supply. And truthfully the HOA has less leverage over homeowners who don’t pay than mortgage companies do. The mortgage company can take away your house. The HOA can only file a judgment against you, and possibly win garnishment of your future wages or something like that.

But it's also hard to blame the HOAs who now have produce the same results with (sometimes dramatically) less income.

If you’re facing foreclosure and your HOA is heckling you for back-owed dues, it’s pretty likely this will be unpleasant and maybe even feel like someone’s rubbing salt in your wounds.

But the reality is that homeowners should be prepared to continue paying their HOA dues until the foreclosure auction sale happens, or be prepared to face the possibility of an HOA lawsuit to get the dues back.

Unpleasant? Yes.
Fair? Debatable.
True? Absolutely.