House Owners Associations Badly Affected By Foreclosures

November 11th, 2008 | Tags: Foreclosures

The ongoing foreclosure crisis has badly affected the house owners associations. When houses fall into foreclosure not only does the property value of the locality plummet but also the house owners association finds themselves not getting their dues from these houses for months on end. Thus foreclosures trigger off budget problems for the house owners associations. Meanwhile the entire neighbourhood becomes shabby with derelict houses attracting crime and disease. The locality becomes ugly with unkempt gardens, stagnant pools and piles of refuse. The associations do not have the funds for maintaining the area.

The crux of the foreclosure related problem is that if few people do not subscribe then the contribution of the others increase. Things have to be kept running no matter how many families are residing – trash has to be hauled, insurance dues cleared and grasses to be trimmed as well as snow removed. There is a limit to how much associations can cut down on expenses. One snowplow may suffice instead of two and one can hunt around for cheap insurance but essential expensive repairs cannot be avoided. In all likelihood the reserve account, which all associations are supposed to maintain, will get dangerously depleted.

The developers who are relatively new are notorious for not keeping the requisite reserve balance even when foreclosures had not clouded the weather. When association fees are low buyers get attracted. By the time the big repairs begin to knock the builders would have vanished.

The foreclosure crisis has put on hold many new projects. Builders continue to be in charge of the associations and that is not good where reserves are concerned. Finally when the foreclosure crisis would have blown over and the associations take back control they will have a slim reserve fund to start with.

The associations generally keep aside 4% from their budget for meeting unpaid bills. Now they are thinking of allotting 8% to 10% on this account, said Pia Trigiani a lawyer representing Common Interest Community Board. Ron Pereira of a house owners association in Lake Ridge having 7,700 units said new fees have been introduced and existing ones increased to meet budgetary deficits. For instance late fees will go up from $20 to $50 and a “reserve contribution” of $500 will be charged for any buyer in the locality including foreclosing banks. The good news is that current residents have not objected to the new hike.