By Deborah Goonan, Independent American Communities
Catherine Reagor and Jessica Boehm of The Arizona Republic have been shedding light on the controversial power of HOA foreclosure. (If you missed it, you can find IAC analysis of the issue here.) To be fair, HOA industry watch dogs, community advocates, and homeowner rights activists have been on top of this issue for well over a decade, and, finally, the issue is moving beyond independent media to regional and national TV and online news outlets.
That’s a good thing, even if many mainstream reporters and editors are still on the learning curve when it comes to separating real estate hype and political spin from the stark realities of living under HOA rule.
From The Kansas City Star, Miami Herald, Chicago Tribune, L.A. Times, the Washington Post, and The Arizona Republic, the pressure is on. Frustrated, angry homeowners and residents want their rights protected, their dignity respected, and the developer, board leaders, managers, and attorneys of their associations held accountable.
Needless to say, the recent barrage of investigative reporting on HOA dysfunction and corruption has put industry trade group Community Associations Institute (CAI) on the defensive. CAI’s latest press release responds to the following source article from The Arizona Republic.
Illuminating the murky business of Phoenix-area HOA foreclosures
Catherine Reagor, The Republic | azcentral.com Published 6:00 a.m. MT Sept. 17, 2017 | Updated 10:36 a.m. MT Sept. 17, 2017
Ask anyone living in a neighborhood managed by an HOA, and you will likely hear a rant.
It could be about anything from fights over paint colors to parking or garbage cans.
HOAs are one of the most controversial topics I have covered during my 22-year tenure as a real-estate reporter in metro Phoenix.
Half of all Valley homeowners live in a community association; many people have strong opinions about them.
I hadn’t delved deeply into the world of HOAs before this year because many of the issues were community stories.
But last year, complaints against HOAs in the Phoenix area ratcheted up. I started hearing from homeowners with HOA issues almost daily.
Read more (with video):
CAI’s latest press release offers several weak defensive arguments.
The most fascinating thing about CAI’s predictable response is the title of the press release: HOA Assessments not to blame for Phoenix foreclosures. And then, if you read the bullet point list that follows, CAI never actually explains why HOA assessments play no role in foreclosures.
Of course there is a direct correlation between any household expense and a household’s ability to consistently pay in full and on time! Real estate developers and sales agents know that buyers are more likely to buy into communities with low or competitive assessment levels.
No one wants to overpay, after all.
That is why developers keep assessments artificially low while construction is ongoing in a subdivision or condominium project. It’s why so many homeowner controlled boards resist increasing assessments, even when they should.
Higher assessments are also correlated with lower sale prices – if a seller can even find a buyer willing to pay hefty assessments on top of taxes, insurance, and mortgage payments.
When a buyer struggles to afford a home, based on the assumption that assessments will remain stable in the future, a spike in monthly assessments or an unexpected special assessment often leads to an inability to pay.
So the title of the CAI article makes no sense.
CAI misses the point
No one is arguing that assessments have no legitimate purpose. At least part, but not all, of HOA assessments do provide funding for public services in the private realm. In a condominium association, assessments also cover essential exterior and common area maintenance of housing structures. I get it. We all get it.
Every member has an obligation to pay assessments. The association has the right and the power to collect unpaid assessments.
But that is not the point of The Republic’s investigative report. The point is, a significant number of HOA attorneys and management companies add excessive fees on top of unpaid assessments. They engage in aggressive, some would say unethical, collection practices that make it difficult to impossible for homeowners to ever catch up with their debt. In some cases, attorney fees exceed total unpaid dues and interest payable to the Association.
The point is, real estate investors are scooping up undervalued properties at HOA foreclosure auctions. But the real estate investors’ windfalls amount to unfair, unjust consequences for homeowners, whose equity is wiped out when their homes are sold for pennies on the dollar.
Another point, not mentioned in The Republic: all of those HOA foreclosure sale bargains are bound to depress appraised values of neighboring properties in their respective Associations. How does that “sustain and elevate property values?”
HOA foreclosure similar to County tax foreclosure
CAI also compares the right of an HOA to foreclose on your home for nonpayment of assessments as the equivalent of bank repossession of a car for defaulting on the loan.
Apples and oranges.
A bank that lends money for a hard asset – such as real estate or a vehicle – has the legal right to take back a home or car if the borrower fails to make payments on those loans.
An HOA, by comparison, does not lend money to the homeowner. It provides “municipal-like” services, as well as other conveniences or perks in amenity-rich communities, by way of contractual agreement. Most HOAs also have the right to impose fines (monetary penalties) unrelated to the essential services portion of the contract. And, in many cases, unpaid or disputed fines quickly morph into the equivalent of unpaid assessments.
The HOA has the right to pursue wage garnishment, lien, and foreclosure to collect unpaid assessments. But the homeowner has no right to withhold assessment payments if the HOA fails to provide the services and perks it has agreed to.
The closest comparison to HOA foreclosure for non-payment of assessments is a tax sale by County government, for nonpayment of property taxes. The process in Arizona is also explained by The Republic.
Arizona owners can lose homes over as little as $50 in back taxes
Emily L. Mahoney and Charles T. Clark, Special to The Republic | azcentral.com Published 7:00 a.m. MT June 12, 2017 | Updated 9:40 a.m. MT June 16, 2017
Homeowners who fall behind on tax bills by as little as Poleeson’s $808 — indeed, sometimes by $50 or less — can have their debt bought by other investors or banks. With what’s known as a “tax lien” on the property, those investors then have the right to collect not just the debt, but compounding interest, too.
If homeowners can’t pay the tax plus interest, they lose their homes and all the equity they’ve gained.
A review of more than six years of data on tax-lien foreclosures across Arizona shows most of the hundreds of thousands of property-tax liens in the state were paid off, sidestepping foreclosure. And a closer look at Maricopa County shows many tax-lien seizures involved vacant lots.
But of the cases that do lead to foreclosure — 1,734 in Maricopa County since 2010 — more than a third are primary residences. That means that 642 homeowners lost their homes and all their equity.
The data shows just how much can be lost:
One investment LLC bought a tiny tax lien — $48.65 — on a faded fixer-upper in south Phoenix, then foreclosed and sold the house for $43,600.
Another purchased a $1,390 tax lien on a house in north Glendale, then took the house in foreclosure and sold it for $210,500.
In Maricopa County, high-poverty neighborhoods such as the Maryvale area, where Poleeson lived, have been disproportionately affected. Hardest hit are areas with large populations of Latinos and African-Americans, such as west Phoenix, south Phoenix and south Glendale.
Many cities and counties across the country sell tax liens, and the system has an immediate public benefit. Investors pay the back taxes immediately, meaning property-tax revenue is restored to counties that have been counting on it in their ever-tightening budgets.
But because the system lets investors pocket the interest or take the home, some say it distorts the government’s duty to help, rather than hurt, taxpayers who may be struggling the most.
Tax-lien sales have long been a niche industry, but in recent years, the pool of investors involved has shrunk in Maricopa County. Traditional buyers have been crowded out by large financial institutions that now make bulk purchases of liens at auction. The winning interest rates have nosedived, making each lien less profitable for investors and forcing out smaller companies who can’t afford to buy in bulk.
Read entire article:
Connecting the dots, it is easy to see that CAI Central Arizona Chapter follows a playbook very similar to that of their County governments. The stated goal is to collect unpaid HOA assessments. The trade group feels every bit as entitled to its rights to foreclose on liens as any County collecting unpaid property taxes for its public services.
But neither CAI nor County governments in Arizona, or across the nation, can offer convincing justification for enabling commercially unreasonable foreclosure sales, where private real estate investors can practically steal homes and land, profiting from the ignorance or economic disadvantage of property owners.