By Deborah Goonan, Independent American Communities
By now most readers probably know that homeowners, condominium, and cooperative associations can opt to work with Sperlonga Data to report delinquent assessment payers to Equifax. (In case you missed it, I covered that bit of news here.)
Now, I can understand why it’s important for each member of an Association-Governed Housing Community to pay assessments in full and on time. Assessment funds are used to maintain the commonly-owned and managed property, to save for future expenses, and to cover administrative costs for enforcing restrictive covenants and rules.
And, yes, when certain members fail to pay their fair share, remaining member either have to pick up the slack or the Association has to cut back on services.
I get it.
But the concept of putting HOA assessments in the same category as other consumer debt, potentially damaging someone’s credit over one or two missed payments amounting to a few hundred dollars or less is controversial enough to leave most housing advocates feeling uneasy.
HOA industry stakeholders would lead the general public to believe every assessment dollar is absolutely essential to the function of each Association-Governed Community. I’ve heard many HOA managers and attorneys refer to late payers as “deadbeats,” or “free riders.”
But, looking at the following realities, it’s hard to make the argument that HOA assessment payments are on par with mortgage payments, vehicle loans, or even property taxes.
- Depending on the makeup of the Association, a significant portion of each assessment payment – perhaps even a majority of it – funds non-essential services such as maintaining recreational amenities or enforcing minor violations of CC&Rs and rules. Therefore, most Associations will not cease to function due to small assessment delinquencies that would be reported by Sperlonga.
- Assessments are not like loan payments or lines of credit – they aren’t used to purchase tangible assets. Furthermore, the homeowner must continue to pay for all HOA “services” No Matter What, even if the Association fails to deliver good service or completely neglects its duties. A consumer who is dissatisfied with services paid by credit card, on the other hand, can dispute the payment and avoid collections from the service provider. Property owners of Association-Governed Communities have no opportunity to withhold assessments and must pay under protest, then file suit in the civil court system in hopes of recovering their loss.
- Some associations, particularly condominiums, share utility lines. Therefore a portion of assessments pays for basic utilities such as water, sewer, electricity, or gas heat. However, modern technology now allows condominiums to use submeters to bill each unit separately, so that utility payments no longer need to be rolled into monthly assessments. An Association can reduce assessments and avoid the headache of collecting utility payments by leaving that to the utility billing company.
- Sometimes assessment delinquencies are caused by disputes over unpaid fines levied by the Association. By the time the property owner realizes that their regular assessment payment has been used to pay one or more fines, their account has already been flagged as delinquent, as there was insufficient money left over to pay assessments in full. The end result: a homeowner fined $50 for not putting the trash can out of view could end up being reported to a credit agency – and incur late fees – if the fine isn’t paid promptly, even if the fine was issued in error! For instance, I commonly hear from owners who say they have received violation letters meant for their neighbor next door or down the street.
- Management companies and bookkeeping services employed by many Associations sometimes make errors. They may be slow to post timely payments, especially if the Association lacks the capability to receive electronic payments. In some cases, an unsupervised manager or board member might even be pilfering HOA funds or diverting assessment checks to a personal checking account. That’s why it’s important to allow property owners the opportunity to protest a late notice and offer proof of payment, rather than automatically being reported to a credit agency.
But it gets even worse, when you look at how the players in the HOA management-collections-credit reporting game are connected.
CAI, Sperlonga, & Equifax: What’s the connection?
Take a look at Sperlonga Data‘s website. Scroll down to Strategic Partners. Who do you see?
None other than HOA Industry trade group Community Associations Institute (CAI), including 24 of its regional or state chapters. And if you check out the bios of Sperlonga’s executive team, you’ll note that a key executive has served as the CEO for community management giant Associa.
Sperlonga and CAI have been cooking up this controversial collection reporting scheme for several years, and, at the end of this article, I have included some documentation to prove it.
In the attached white paper, written by Sperlonga, apparently in conjunction with Equifax, you’ll see that in 2013, the average loss to loan servicers for each delinquent HOA mortgage account was nearly $7500. Most of that cost represents late fees and legal costs, not overdue assessment payments. Sperlonga actually admits that the homeowner delinquent on HOA assessments can find it next to impossible to modify a mortgage loan or complete a short sale or deed in lieu transfer, simply because of inflated HOA liens that cloud title to the property. (see page 4) Note the reference to the “bottomless HOA pit” that affects struggling homeowners.
When you read this white paper, it becomes clear that Sperlonga is selling its HOA database and credit reporting services to financial institutions, particularly loan servicers and investors. The goal is to make them aware of HOA assessment delinquencies in early stages, before all of the junk fees, bloated attorney fees, and collection costs are added. Additionally, mortgage holders continue to be concerned about HOA foreclosure wiping out the first mortgage in lien priority states. That battle is still raging in courts across the U.S.
Some other tidbits of interest in the Sperlonga LLC white paper:
- “CAI represents only 10% of the current estimated HOA market. America’s homeowners are tremendously fragmented, difficult to maintain contact with, and in many respects, ‘off the grid’ for lenders, servicers, title insurers, data aggregators and others they affect.” (page 6)
- “HOAs in super lien areas are more than twice as likely to file recorded liens, as they know that these liens can take precedence over first mortgages.” (page 8)
- REO property HOA payments must be proactively managed to control unnecessary losses. Servicers pay tremendous amounts in penalties and late charges that can be avoided by using Sperlonga’s services. (page 12 – another blatant admission of abuse in the HOA industry)
On that last tidbit, this is precisely the reason that several states have enacted statutes that limit a mortgage holder’s liability for unpaid HOA assessments and associated fees. Note that similar protections, including caps on late charges, HOA collection costs, and HOA attorney fees, do not exist for property owners in HOAs.
At the end of the white paper, note the logos for CAI (Community Associations Institute) as well as Matt Martin Real Estate Management (MMREM), recently rebranded as Chronos Solutions. It should now be crystal clear that CAI represents the interests of HOA managment companies and attorneys, not those of individual homeowners that reside in Association Governed Common Interest Communities.
Read more about the financial risks posed by HOAs, the risks the industry does NOT want consumers to know about.