Forest Hill HOA: foreclosure vs. Age in Place

By Deborah Goonan, Independent American Communities

A few weeks ago I wrote a blog about homeowners in Forest Hill, the historic neighborhood that straddles Cleveland Heights and East Cleveland. (If you missed it, you can read it here.) The neighborhood has a voluntary homeowners’ association, the kind that operates more as a civic association: annual dues are quite low and payment is optional. The funds are used primarily to enforce neighborhood maintenance standards and to organize social events.

A Board of Trustees also works with both City governments to address concerns of the neighborhood. According to its website, Forest Hill Home Owners, Inc. (FHHO), all homeowners are members, and the suggested minimum annual donation is $75.

According to a recent feature article in Cleveland Magazine, Forest Hill has roughly 1,000 households, and 41 members serve on Forest Hill’s board of trustees and various committees. However, two-thirds of homeowners do not pay dues, and do not participate in HOA meetings or neighborhood activities. The current President of FHHO is Pete Grebus, and the next election for Trustees is scheduled for May.

According to the report in Cleveland Magazine, and another letter written by Grebus to the Heights Observer, one issue facing FHHO is the condition of some of the homes in the neighborhood. Of 1,000 properties, Grebus estimates roughly 70 are in violation of community standards for exterior paint, gutters, and landscape maintenance. While most are reportedly minor violations, a few homes are in desperate need of maintenance. FHHO has taken the stance that it is best to work with both City code enforcement departments, banks that own homes in foreclosure limbo, and older homeowners who may need assistance in maintaining their property. The goal is to help owners “age in place” as long as they are able.

But a vocal minority group of owners, led by Mike Reilly (owner of a painting and home maintenance company), has created a group called Campaign for Forest Hill (CFH). In December of 2016, CFH went on record stating its desire to secede from both East Cleveland and Cleveland Heights and form a separate Village for Forest Hill, according to this WKYC report.

http://www.wkyc.com/news/local/unhappy-cleveland-heights-and-east-cleveland-residents-push-to-form-new-village/375409482

However, the idea of forming a tiny Forest Hill municipality was apparently unpopular and unrealistic.

Therefore, the current goal of CFH is to “professionalize” the HOA by granting the association the power to place a lien upon a home with chronic Covenant violations, to cover the cost of materials and labor necessary to bring the property under compliance.

According to Reilly’s plan for Forest Hill, the HOA should be able to foreclose on property liens if a homeowner failed to reimburse amounts due to FHHO.

Current Covenants and Restrictions for Forest Hill empower the Association to enter upon private property and take appropriate action at the owner’s expense, but, unlike most modern HOAs, FHHO’s CC&Rs do not explicitly mention the right to place a lien upon private property, let alone foreclose on that lien for nonpayment.

 

As a voluntary HOA, according to Grebus, Forest Hill does not have the legal right to sue or initiate foreclosure action against property owners. And, in any event, he is opposed to neighbors suing neighbors.

Perhaps Grebus understands the grave reality of home foreclosures upon a community.

Plenty of modern, mandatory HOAs across the country have used their powers of foreclosure to collect on property liens. But the real estate industry that serves association-governed communities cannot present any evidence that doing so has protected or increased property values. On the contrary, when a property is foreclosed by an HOA, and purchased by an investor at a deeply discounted price, it is likely to adversely affect real estate appraisal comparisons when other owners sell their homes or refinance their mortgages.

Although an investor might renovated and improve the appearance of run down properties, there are other factors to consider.

When a large number of homes are sold to investors, a neighborhood transitions from one that is primarily owner-occupied to a rental community occupied by tenants – those homes often owned by absentee landlords. With fewer residents committed to long-term residency, there is often less civic involvement and neighborhood cohesion. Owners who do not live in the community retain their voting rights in the homeowners’ association. But they may be less willing to invest in long term maintenance of their properties, common areas and amenities, and community quality of life services that generally appeal to owner occupants.

On the other hand, if homes in need of renovation can be sold to buyers who intend to reside in them for many years, the sense of community also benefits as the appearance of those homes are improved.

 

A stark contrast

To illustrate the stark contrast between FHHO and CFH with regard to enforcement of community standards, see this YouTube video posted by Reilly for CFH in march 2016. Reilly is abundantly clear about his goals and intentions at the 7 minute mark.

In his own words, Reilly says to a neighbor, of the unkempt house next door that he and a few crew members had just cleaned up:

We’re going to send a bill, we’re going to put a lien, we’re going to foreclose, and guess what? We’re going to get a nice young doctor living next door to you. How’s that?

 

How can Reilly be so sure a buyer is waiting in the wings for the properties he cleans up? Because, according to information and marketing videos posted on his company’s website, Reilly Painting and Contracting has teamed with an agent from Century 21, in a second business venture called Reilly Homes.

The company serves as a “one stop shop” for owners looking to sell their run down, unwanted homes. Reilly’s advertises that his company will make repairs, cure any code violations, paint the home, have it professionally staged, and then sell the home through Century 21.

Reilly also manages and maintains rental properties in the Cleveland area.

By the way, all of this fuss about community standards is over, at most, 20 properties that have fallen into a serious state of disrepair. That represents 2% of properties. Many municipalities and private HOAs across the state of Ohio contend with far greater numbers of properties in foreclosure limbo and in a state of disrepair. Nevertheless, CFH has launched a Strategic Plan, and has garnered a dozen or so supporters. The Strategic Plan’s number one goal is “to increase property values,” and the endgame is to “line up investors in vacant properties.”

Do Reilly’s personal business interests have anything to do with his stance on foreclosing Forest Hill properties and selling them to investors? That is for the reader to decide.

 

Two different HOA philosophies

The bottom line is that, while Forest Hill Home Owners, Inc. wants to prevent strong arm tactics and foreclosure of properties, Campaign for Forest Hill seems all too eager to foreclose on properties and transfer those homes to investors rather than the next owner-occupants.

But, for anyone familiar with the mindset of indsutry stakeholders that build, manage, and serve HOAs, CFH’s strategic plan is nothing new.

Simply stated, the so-called modern, “professionalized HOA” places a higher value on property than the people who reside in its community: it is more important to protect property values than community values.

In fact, the mandatory HOA is not so much a community of neighbors as it is a community of real estate assets with shareholders obligated to bear all costs and liabilities for managing its common assets.

Moving forward, it’s up to homeowners in Forest Hill to decide what kind of community they want.

 

 

 


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