By Deborah Goonan, Independent American Communities
Did you know that an increasing number of homeowners’ associations (HOAs) – single family homes in planned communities – are struggling and failing in locations all across the country?
Most Americans know that condominiums have an alarmingly high failure rate. The press has provided a great deal more coverage of condo associations with leaky roofs, construction defects, high vacancy rates, and investor-led condo terminations with conversions to apartments.
But for more than a decade, most consumers seem to believe that owning a single family home in an HOA poses far less financial risk.
Or does it?
Condominium vs. Homeowners’ Associations
The risk factors for failure of a planned community differ somewhat from those of a condo association.
In a condo association, when owners either cannot or will not pay their share of assessments (maintenance fees), basic maintenance of the building envelope and surrounding grounds is often neglected. Utilities might go unpaid, because they are often collected as a portion of assessments. To complicate matters, if a majority of voting interests in a condo association choose not to save money in a long-term Reserve Fund, there often isn’t enough money to take on major, expensive repairs and renovations. Therefore, revenue-starved associations can fall into a state of blight, crime, and general obsolescence as their facilities age and begin to wear out. In some cases, poor construction and high vacancy rates can lead to the rapid failure of a condo association in less than a decade.
But in a planned community, while each household pays a lower assessment, that revenue is often necessary to maintain basic infrastructure such as community roads, storm water conveyance and treatment systems, private safety and security staff, perhaps even private water and sanitary sewer utilities. All of the common areas must be adequately insured, as well as the association itself. The larger and more complex the planned community, the more HOA members must pay for all of these expenses, as well as maintaining recreational amenities, if present.
In an HOA, owners are also responsible for maintenance of their own single family detached homes. If the HOA has townhouses, owners may be obligated to pay an additional assessment for maintenance of their small yards and exterior surfaces. Both of these maintenance expenses can be substantial. When home buyers stretch to obtain a mortgage, any blip in economic conditions can lead to financial disaster for homeowners. When there’s too much month left at the end of a household’s money, HOA assessments are among the first bills that are left unpaid.
This was a common problem in many planned communities chock full of homebuyers who paid inflated prices at the time of purchase, taking on mortgages with initially low payments that later ballooned to unmanageable ones.
When HOA members fail to keep up with assessments, or vote to underfund operating and reserve budget over the years, the first thing to suffer is the recreational amenities. A pool might turn green with algae or a playground may be filled with litter and broken glass. Equipment may break down and go unrepaired, leading to safety hazards, making the amenities unusable. Next on the list of neglect is basic infrastructure: roads begin to crumble, water begins to flood streets when it rains, street lights go dark, litter is not picked up, and common lawns, ponds, and lakes become unsightly. Another common occurrence is that security staff is cut or eliminated entirely. At that point, crime and vandalism are likely to increase.
Some struggling associations even cut back on insurance coverage, exposing HOA members to undue financial risk in the event of a natural disaster, fire, theft, or lawsuits filed against the HOA.
It may take a few years longer for a single family home community with an HOA to show signs of distress, but by the time these signs are noticeable, the association tends to be in serious financial trouble.
Pine Ridge HOA in the Pocono Mountains of Pennsylvania is one example.
Pine Ridge lacks money to make it through fiscal year
Posted Oct 4, 2016 at 7:20 PM
Updated Oct 5, 2016 at 7:37 AM
By Stacy M. Brown For the Pocono Record
The once proud and formerly gated Pine Ridge private community in Bushkill is facing dire financial problems as many residents have fallen behind in their homeowners’ association dues leaving the community with a $450,000 budget shortfall.
Board members have sought help from local and state officials and, in a recent letter to residents, the association noted that it does not have enough money in its budget to make it through the fiscal year.
Board members said state government may have to intervene.
“I don’t believe many of our residents have ever recovered from the recession,” said Alexandra Tutuianu, the community manager at Pine Ridge. She added that 147 homeowners in Pine Ridge have lost their homes to foreclosures in three years.
She says state law says the association cannot collect fees of more than six months when property is in foreclosure and the association no longer can receive notice of any sheriff sales. Tutuianu said banks are not following through on foreclosures, allowing homes to linger vacant and unsold for years, which has also hurt, and that the value of property has declined because of all the foreclosures.
The association wants the state to add a super lien option, Tutuianu said, that would allow associations to foreclose after no more than two years of delinquency of dues with the process starting one year into delinquency.
According to the facts provided in the above Pocono Record article:
- Pine Ridge Association is responsible for maintaining 28 miles of road.
- 2,729 individuals live in the community of 1,121 housing units.
- Only 70 percent of units are owner-occupied, 7 percent are renter-occupied, and 252 units are vacant
- Median home value is approximately $172K
- 405 accounts are delinquent on assessments – that represents 36% of total units!
Despite the fact that these conditions have been getting worse over nearly a decade, government officials claim to be unaware of distress in Pine Ridge.
But I doubt Lehman Township and Pike County officials could have failed to notice that 13% of Pine Ridge homes have faced foreclosure in the past three years. I’m certain most, if not all, of those homes are also delinquent on property taxes. At least the County and Township will collect on that tax delinquency when banks finally foreclose. Pine Ridge HOA will be lucky if it can collect 6 months worth of delinquent assessments, if anything at all.
In the meantime, PA Rep. Rosemary Brown has sponsored HB 1774, a bill with the original intent of making HOAs more accountable, with oversight by the Attorney General’s Bureau of Consumer Protection (BCP). The problem is, of course, the bill does not address fundamental economic distress faced by Pine Ridge and countless other HOAs and Condo Associations in the state.
And while Rep. Brown’s proposed legislation is supposed to provide much-needed consumer protection to property owners in Association Governed communities, the current version has been considerably watered down. Lobbyists from Community Associations Institute (CAI), PA -DEL Chapter have been working fervently to remove any regulatory “teeth” from HB 1774, drastically limiting the scope of authority of the AG to take consumer complaints about Association Governing boards, and practically eliminating any obligation of the BCP to actually investigate those complaints.
In short, state PA State Legislators and elected officials have a great deal of work ahead of them, if they are serious about improving economic conditions for communities and protecting the rights of taxpaying residents of Association Governed Housing.