Home Owners Associations are enduring a major budget crisis because so many delinquent homeowners are also delinquent on their HOA dues.
Today's featured property is scheduled for Trustee Sale on April 5, 2010. Will the short sale process in time?
Irvine Home Address … 4 Windrow, Irvine, CA 92618
Resale Home Price …… $446,879
But we’re running through the fire
When there’s nothing left to say
It’s like chasing the very last train
When we both know it’s too late (too late)
You can’t play our broken strings
James Morrison — Broken Strings
People want to play even if they have broken strings. Many money renters squat in homes they are not paying for. They fail to pay their home owners association dues as well as their mortgages, but they still want access to the facilities as if they were current on their dues.
I first discussed Home Owner Associations, HOAs, in the post I Want My HOA.
Homeowners associations are formed to maintain facilities in common ownership, and to maintain property values in an area through the enforcement of covenants, conditions & restrictions (CCRs). It has been shown, painfully, that individuals acting without governance will allow their properties to deteriorate, appropriate public spaces, and express their individuality in ways which harms neighborhood values (anybody remember the clip below from Cheech and Chong's Next Movie?).
Later, with help from Gus Ayers, the IHB published this post: Ownership Cost: Homeowners Associations. That post has a detailed discussion of HOA related matters.
Today, we look at how Florida has cracked down on owners who are not paying their HOA dues.
Melissa Solis said she understands that she can't use her community pool or clubhouse because she's late paying her homeowner-association fees.
But it's unfair, she said, that security guards at the gated entrance to her neighborhood prevent her friends, family, babysitter and even the delivery man from Winter Garden Pizza Co. from getting to her home. They wouldn't even allow her mother-in-law inside the gates for a family birthday party.
Instead, she has to meet her visitors outside the community's entrance, pick them up and drive them inside in her car. Unlike residents who are current with their fees, even Solis cannot enter through the automatic gates; she must instead get the guard's approval to access her home.
"I think it's more them trying to humiliate us," said Solis, who works in food services. "It's very embarrassing for our daughter. She's 10 years old, and she doesn't understand that the economy is tight and Daddy doesn't have a job."
[Melissa Solis, who lives in Stoneybrook West, says she feels like the homeowners association is trying to humiliate her for not paying overdue fees. (GEORGE SKENE, ORLANDO SENTINEL / March 16, 2010)]
Unfair? She isn't paying her share of the maintenance for the facility. Why should she be able to use the facilities? It is only her sense of entitlement that makes it seem unfair.
How many of you who regularly get Disney passes didn't do so during the recession? Should Disney continue to let you in the park?
Stoneybrook West's guard-shack standoff underscores the mounting frustration of homeowner and condominium associations in the Orlando area and across Florida. Many associations face mounting delinquency rates of 30 percent to 50 percent, in a state with one of the highest foreclosure rates in the country. As state legislators meet in their annual session this month and next, they will consider several bills designed to ease the financial woes of homeowner and condominium associations.
One bill, filed by state Sen. Mike Fasano, R-New Port Richey, would allow associations to suspend residents from using common areas if they are three months or more behind paying fees. It also empowers associations to collect fees from renters, and prohibits association members from serving on the board if they are three months delinquent.
I don't think they thought this one through; if you were a renter, and if you were approached by a representative from your landlords HOA and asked to pay, what would you do? After I finished laughing, I would either move, or pay the fee and deduct it from my rent. If the deadbeat landlord had the nerve to complain, I would point out their breach of contract and move — I might even sue for damages.
"These homeowner associations are crippled, and they're looking for any kind of edge," said Sarasota lawyer David Muller, co-executive director of the Community Association Leadership Lobby, which represents more than 4,000 associations. "But actually preventing a guest from accessing the gates — that's something that's going a little too far, in my opinion and when concerning the statutes."
But the law is on Stoneybrook's side, said Orlando lawyer Jim Gustino, who represents the 13-community golf-course development in Winter Garden. State Circuit Judge Thomas B. Smith ruled last year that the association for sister development Stoneybrook East, in east Orange County, could restrict guest access for residents who are 90 days late making payments and who were given the chance to start a payment plan.
"We have to bring whatever lawful pressure that we have to bear on these folks. No one feels good about it, but it does result in collecting money," Gustino said. "Many folks will, by some miracle, come up with the money they couldn't come up with before, because they don't want their family members to be denied entry."
As a result of such actions, Stoneybrook West's delinquency rate is 5 percent or 6 percent, Gustino said, but only because it has been aggressive in keeping residents up to date. Dozens of homeowners who face financial hardships have entered into payment plans, he said.
"If you don't take an aggressive enforcement position, you will discover you will be ignored," the lawyer said. "Associations try to be nice to people and try to be more accommodating than Stoneybrook West is with its people and, as a result, those association are in distress. They have to increase dues and, as a result, they have more defaults."
I can understand their pressures to get people to pay. HOAs do not have outside sources of revenue, so people who do not pay get a free ride on everyone else.
Stoneybrook's actions did raise some concerns among lawyers and other individuals who cited Florida statutes that require associations to provide access to their residents.
Veteran homeowner-association board member Hobie Fisher, who serves on two boards for the Avalon Lakes community in east Orange, said his board have been actively taking over properties in foreclosure. But prohibiting access to residents' guests, he said, is going too far.
"I think that's wrong. You can't deny people the right to come in there. You can't deny people and their guests the right to property," Fisher said.
Stoneybrook's prohibition of certain guests also raises concerns about gated communities. Fisher, half jokingly, said such subdivisions should just charge visitors a small toll to help underwrite community expenses.
The idea is good although impractical. If Ms. Solis is embarrassed now, how will she feel when her mother is charged $1 to visit?
Solis said her view of living behind gates has changed since the blockade began keeping her friends and family at bay.
"I moved here thinking, ‘A gated community, how nice,' " she said. "If I knew then what I know today, I would have never gotten into a gated community."
What would happen if we did this here in Irvine? We have dozens of gated communities and most of our facilities in open communities are gated. We would quickly find out who isn't paying their dues….
Gustino said the very expense of operating a guarded-and-gated entry makes it imperative that all residents pay their fair share of those security costs.
Solis estimated that she is behind about $1,400 on her association fees. She said she would like to get current, but her family's budget has been cut due to her husband's unemployment. She said she has been tolerating the gate situation for more than a year before she got fed up this week and decided to speak out.
"You know, I'm not going to back down because they try to intimidate you," she said. "At least I'm going to hold my head up."
Perhaps some attorney will take on a case like hers to attempt overturning the Florida ruling, but other than that, I don't see what this woman can do about her exclusion.
Mary Shanklin can be reached at firstname.lastname@example.org or 407-420-5538.
MORE FALLOUT FROM HOUSING'S MELTDOWN
Mind paying HOA dues for empty homes? Empty Homes Mean Others Pick Up Tab
What do you think about this practice? Should squatters who are not paying their HOA dues have continued access to the facilities?
Ideal Home Brokers and Financed Trustee Sales
Since we launched our Trustee Sale buying service in January, we have been exploring methods of structuring a deal with various hard-money lenders. We have lined up two sources (which isn't enough) and we are now able to put financed buyers into Trustee Sale properties. Today's featured property may sell to a third party at auction on April 5. Thanks to 5% interest rates, recent comparable sales value the property at $460,700.
If a buyer steps forward and puts 3% down on a $446,879 purchase price, our hard-money capital partner will authorize us to go to auction and bid on the property. In the event we are the successful bidder, the property is automatically in escrow with the buyer who placed the down payment. We are discounting the property 3% from comparable sales because we don't have the uncertainty and market risk of searching for a buyer. The deal is attractive to the hard money lenders because they have very little risk when a buyer is already in escrow, and the offer is attractive to buyers because they obtain a discount from comps, and they have exclusive access to a market other financed buyers cannot access.
This isn't a negotiation. Based on the requirements of our hard money lender and the other costs in the deal, that is the price we must charge to make the deal work. Someone has been waiting on this property as a short sale, and the lender may approve the short before April 5, but if not, there is an opportunity to get this property at auction.
Next week, we will have a series of posts outlining the details of this offer, and for the remainder this week, I a profiling more eligible properties (anything under $600K). In short, we can put financed buyers into Trustee Sale properties at a 3% discount to comparable sales.
Today's featured property was first profiled last year in the post Dust in the Windrow.
Irvine Home Address … 4 Windrow, Irvine, CA 92618
Resale Home Price … $446,879
Home Purchase Price … $530,000
Home Purchase Date …. 11/9/2004
Net Gain (Loss) ………. $(109,934)
Percent Change ………. -15.7%
Annual Appreciation … -3.1%
Cost of Ownership
$446,879 ………. Asking Price
$15,641 ………. 3.5% Down FHA Financing
5.05% …………… Mortgage Interest Rate
$431,238 ………. 30-Year Mortgage
$93,058 ………. Income Requirement
$2,328 ………. Monthly Mortgage Payment
$387 ………. Property Tax
$93 ………. Special Taxes and Levies (Mello Roos)
$37 ………. Homeowners Insurance
$183 ………. Homeowners Association Fees
$3,029 ………. Monthly Cash Outlays
-$385 ………. Tax Savings (% of Interest and Property Tax)
-$513 ………. Equity Hidden in Payment
$31 ………. Lost Income to Down Payment (net of taxes)
$74 ………. Maintenance and Replacement Reserves
$2,235 ………. Monthly Cost of Ownership
Cash Acquisition Demands
$4,469 ………. Furnishing and Move In @1%
$4,469 ………. Closing Costs @1%
$4,312 ………… Interest Points
$15,641 ………. Down Payment
$28,891 ………. Total Cash Costs
$34,200 ………… Emergency Cash Reserves
$63,091 ………. Total Savings Needed
Sq. Ft.: 1450
$/Sq. Ft.: 328
Lot Size: 2,739 Sq. Ft.
Property Type:: Residential, Single Family
Style: Two Level, Contemporary
Best of both worlds. .. detached homes with low maintenance yards and HOA ammenities . .. less land but well used so yard and patio are enclosed for privacy while grassy front yard is rolling lawn maintained by HOA. Living room with vaulted cathedral ceilings has double patio doors overlooking the rose garden and yard. Spacious kitchen has remodeled Euro-style cabinets with big island cooking area and breakfast bar. Direct access to laundry in garage and dining room/family kitchen with corner windows onto yard. Master suite is the only room perched above overlooking living room and corner windows over the yard. 2 Bedrooms down and next to bath. One has double door entry for use as work at home office or den or library.
This owner paid $530,000 on 11/9/2004. He used a $424,000 first mortgage and a $106,000 down payment. On 7/30/2007 he managed to get a HELOC for $98,055 which withdrew most of his downpayment (and earned him a HELOC abuse grade of D). Having obtained what he could, he defaulted in early 2009:
Recording Date: 12/30/2009
Document Type: Notice of Sale (aka Notice of Trustee's Sale)
Recording Date: 05/22/2009
Document Type: Notice of Default