Real Estate Market

Tough economic times continue for homeowner associations

(12/16/2011) ERATE Exclusive - Homeowner associations (HOAs) are beginning to see some light through the economic darkness, but it's only a glimmer.

The latest Community Associations Institute (CAI) survey of HOA financial issues, compared to a similar survey last year, reveals mixed results -- some financial improvements are being offset by a larger number of still worsening conditions.

Struggling with financial issues associated with the mortgage foreclosure crisis and economic downturn, 46 percent of HOA community managers say their client associations face "serious" problems as a result of the downturn. Ten percent describe the impact as "severe."

Last year's survey found 45 percent of community managers listing as "serious" financial problems HOAs face, but only 9 percent described the impact as "severe."

About a quarter of community managers said more than 5 percent of their units are vacant, the same as last year. This remains largely due to foreclosures, the inability of nonresident owners to sell or rent their properties or owners simply walking away from their mortgages - and homes. Another 30 percent of managers report vacancy rates of 3 to 5 percent, up from 29 percent a year ago.

Associations are rarely able to collect assessments on vacant homes and that exacerbates financial strain on the communities and their homeowners.

Associations rely on homeowner assessments to fund services such as utilities, trash pickup, snow removal, landscaping and road and building maintenance. Assessments also fund a wide variety of amenities like swimming pools and playgrounds.

Today 63 percent of associations have assessment delinquency rates exceeding 5 percent, down from 65 percent last year. One in three associations has a delinquency rate exceeding 10 percent, and for almost one in 10 HOAs, the rate is more than 20 percent, in both cases, little changed from last year.

"High delinquency rates place tremendous pressure on associations to meet their obligations to the homeowners who are paying their fair share," says CAI's CEO Thomas M. Skiba, CAE.

"When some owners - including lenders 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. Associations must still pay their bills," SKiba added.

According to a separate CAI survey, more than 70 percent of bank-owned properties are not making timely assessment payments to their associations, also unchanged from a year ago.

CAI says 60 million Americans live in an estimated 315,000 homeowners associations, condominium communities and residential cooperatives. Approximately 600 CAI member community managers responded to the survey.

HOAs are taking a variety of steps to address budgetary shortfalls. CAI found among HOAs:

  • 50 percent have increased homeowner assessments.
  • 40 percent have reduced contributions to reserve accounts that are set aside for major maintenance and repairs, up from 31 percent a year ago.
  • 39 percent have reduced landscaping services, up from 35 percent.
  • 38 percent have deferred maintenance of common elements.
  • 38 percent have postponed planned capital improvement projects, unchanged from last year.
  • 28 percent have reduced professional costs or management fees.
  • 22 percent have borrowed from their reserve accounts, up from 23 percent.
  • 20 percent have levied special assessments, up from 16 percent.

HOA's financial troubles have prompted CAI to lobby for a modification of Federal Housing Administration (FHA) policies that place restrictions on FHA financing for HOA properties.

"Many owners need to sell their condominiums, and there are buyers. But recent FHA actions are getting in the way," Skiba said.

"We can't afford FHA policies that prevent many potential buyers from obtaining FHA-backed loans. This just worsens an already-depressed housing market. Not only does it affect potential buyers and sellers, it has an adverse impact on many struggling communities," he added. See Mortgage Matters.

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