(11/3/2010) More than half of the nation's community associations
struggle with financial issues associated with the mortgage foreclosure
crisis and related economic downturn, according to a national survey by
Community Associations Institute (CAI).
Forty-five percent of community managers for an estimated 310,000
developments say associations they serve face "serious" problems as a result
of the housing and economic downturn, while 9 percent describe the impact as
"severe."
The survey also says 38 percent of the estimated 310,000 developments
have postponed planned capital improvement projects and 35 percent have
reduced landscaping services to reduce budgetary shortfalls.
Homeowner associations (HOAs) are the fastest growing form of housing in
the nation.
HOA home owners buy a home in a community governed by a non-profit
association. The association's board of directors manage the care and upkeep
of the community and they manage enforcing the rules and by-laws, often with
the help of an outside management company hired to carry out the board's
orders.
In most, but not all associations, owners typically own and care for
their own homes, on their side of the wall. The HOA cares for common areas,
infrastructure and other elements shared by all.
Also known as common interest developments (CIDs), they come in a variety
of flavors with varying types of governance, including planned-unit
developments (PUDs) of single-family homes, condominiums, townhome
developments and cooperative apartments.
According to the Community Association Institute, in 2010 there were
nearly 310,000 community associations, with nearly 25 million units and 62
million residents.
Associations rely upon monthly homeowner assessments or dues to fund a
budget for services including utilities, trash pickup, snow removal, road
and building maintenance and repair, landscaping and upkeep. Assessments
also fund a wide variety of amenities like swimming pools, gardens and
playgrounds.
Unfortunately, more and more often, home owners hit by a tough economy
can't afford their dues and/or face foreclosure, like other home owners who
don't live in an association community.
Assessment delinquency rates have more than doubled since 2005.
Today, 65 percent of associations have delinquency rates exceeding 5
percent, up from just 19 percent of associations in 2005. More than 30
percent have delinquency rates exceeding 10 percent, and for one in 10 --
nearly 30,000 associations -- the delinquency rate is more than 20
percent.
"High delinquency rates put a lot of pressure on associations to meet
their obligations to the homeowners who are paying their fair share," says
CAI Chief Executive Officer Thomas M. Skiba.
"When some owners -- including banks that have foreclosed on homes and
now own them -- don't pay their share, other homeowners often must make up
the difference in higher regular assessments or special assessments.
More than 70 percent of bank-owned association properties are not making
timely assessment payments to associations.
A quarter of community managers say more than 5 percent of their units
are vacant.
This is largely due to foreclosures, the inability of non-resident owners
to sell or rent their properties or owners simply walking away from their
mortgages -- and homes.
Another 29 percent report vacancy rates of 3 to 5 percent.
All of this has a negative affect on home values.
Associations are taking a number of steps to address budgetary
shortfalls:
• Thirty-one percent have reduced contributions to their reserve
accounts, funds that are set aside for major maintenance and repairs.
• Twenty-three percent have borrowed from the association's reserve
account.
• Sixteen percent have levied special assessments.
• Twelve percent are allowing residents to perform minor tasks in
the community.
• Six percent have borrowed from banks and other lenders.
Says Skiba, "They are making difficult choices because they have few
alternatives. Board members in every community association manage the
business of their communities, and businesses must pay their bills."
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