By Deborah Goonan, Independent American Communities
One of my primary goals for IAC blog is to educate housing consumers about the political and commercial environment that adversely affects our personal freedom, health, happiness, and financial well-being.
That’s why I pass along and analyze news that goes well beyond HOA disputes over displaying the American flag, or videos of contentious Board meetings. Beyond the obvious problems with theft and embezzlement, blight and crime in failed communities, and visibly crumbling private roads and dams, I highlight less visible examples of taxpayer and housing consumer exploitation.
One dark corner of the financial and real estate industries: Innovative and sleazy collection methods for HOA assessments. The biggest trend in the past decade is to entice HOA Boards to sell homeowner and condo association liens to for-profit companies. That takes the Association off the hook for its uncollectible debt and generates some much needed fast cash. However, publicly traded corporate HOA debt buyers will then often push the limits of the Fair Debt Collections Practices Act. (FDCPA)
And there’s plenty of money to be made, since there are few regulations that cap collection of legal fees and surcharges that artificially inflate homeowner debt. Those high fees can quickly transform a relatively small lien of a few hundred dollars into thousands of dollars, making it next to impossible to repay, even on a payment plan.
What’s more, sometimes HOA liens arise from frivolous or even fraudulent circumstances. Selective enforcement is fairly common, as are homeowner disputes with their Association over fines, billing errors, and special assessments. There’s no real oversight, and most states will allow your HOA or COA full authority to assess and fine homeowners without limitation.
The problem is, when Owners’ Association liens remain unpaid, foreclosure often follows. Investors purchase undervalued homes and condos, often displacing owners or unsuspecting tenants.
Here’s a recent news release about LM Funding, a relatively new company that purchases liens of Association-Governed Residential Communities:
LM Funding Expands Community Association Funding Business to Illinois
The news release contains this description of the company:
About LM Funding America
LM Funding America, Inc., together with its subsidiaries, is a specialty finance company that provides funding to nonprofit community associations (Associations) primarily located in the state of Florida, as well as in the states of Washington and Colorado. The company offers funding to Associations by purchasing a certain portion of the associations’ rights to delinquent accounts that are selected by the Associations arising from unpaid Association assessments. It is also involved in the business of purchasing delinquent accounts on various terms tailored to suit each Association’s financial needs, including under its New Neighbor Guaranty™ program. The company was founded in 2008 and is based in Tampa, Florida. The company’s common shares and warrants trade on the NASDAQ Capital Market under the symbols “LMFA” and “LMFAW”.
Of course, the company does not mention that it is the target of lawsuits in Florida, as recently reported in the Tampa Bay Times by Susan Taylor-Martin:
Lawsuits attack business model of Tampa’s LM Funding
The firm — which buys the rights to collect delinquent homeowners association dues — is under attack in two lawsuits accusing it of illegal practices.
One suit, filed by a Miami condo association, alleges that LM Funding concocted a “criminally usurious lending scheme” that targeted struggling community associations.
The other suit, by a company that buys distressed assets, accuses LM Funding and its CEO, Tampa attorney Bruce Rodgers, of demanding payment of fees to which they are not entitled.
Both lawsuits seek status as class actions, a move that could vastly expand the number of plaintiffs trying to collect from LM Funding.
Some of you may wonder how state and local governments can allow companies such as LM Funding to exist, let alone conduct its business largely free of regulation.
The answer is simple: many local governments engage in the same behavior of selling off their tax liens to for-profit debt collection and finance companies. The Washington Post did an in-depth report on this practice in 2013.
Half the nation’s counties sell property tax bills to debt collectors
By Niraj Chokshi December 9, 2013
Local governments around the country are facilitating a practice that, in some cases, allows predatory debt collectors to seize people’s homes.
They do so by selling tax liens—a local government’s right to take a home over unpaid property tax bills—to third parties. In one extreme case, a man lost a nearly $200,000 home over a $134 debt. Last year, about half the nation’s counties put up about 1.6 million such liens for sale, usually to private investors. And those same local governments have done little to protect the homeowners involved, according to a Washington Post investigation.
Local laws do little to protect homeowners
Story by Alexia Campbell, Danielle DeCourcey
Published on December 8, 2013
Local governments placed tax liens on more than 1.6 million properties nationwide last year, but tax collectors from Illinois to Florida to New Jersey acknowledge there are few safeguards in local laws to prevent the private investors who bought them from taking advantage of distressed homeowners, according to a Washington Post study.
No wonder there’s essentially no regulation of HOAs and debt collection practices in so many states across the US. The bottom line is that, in some states, elected officials that favor any and all methods for collecting tax liens are akin to the fox watching the henhouse.