Homeowner associations resorting to foreclosures

A rusting pipe is among plumbing problems at Inlet House in Florida. The homeowner association has assessed $6,000 a condo for plumbing repairs and has foreclosed on residents who haven't paid. ASSOCIATED PRESS Enlarge

The Inlet House condo complex in Fort Pierce, Fla., was once the kind of place the 55-and-older set aspired to. It was affordable.

The pool and clubhouse were tidy, the lawns freshly snipped. Residents, push-carts in tow, walked to the beach, the bank, the beauty parlor, the cinema, and the supermarket.

In postcrash America, this was a dreamy little spot, especially for people on fixed incomes.

But that was before the rats started chewing through the toilet seats in vacant units and sewage started seeping from the ceiling. Before condos that were worth $79,000 four years ago sold for as little as $3,000.

And before the homeowners' association levied $6,000 assessments on everyone -- and then foreclosed on seniors who couldn't pay the association bill, even if they didn't owe the bank a dime.

Usually, it's the bankers that go after delinquent homeowners. But in communities governed by homeowners' associations, as the sour economy leaves more people unable to pay their fees, it's neighbor versus neighbor.

"What the board is doing is trying to foreclose on people to force people out the door," said Mike Silvestri, 75, who stopped paying his dues at Inlet House in protest over what he considers unnecessary and unaffordable assessments.

He and others contend there were cheaper ways to deal with the rat infestation and leaky sewage that led the board to order a costly plumbing overhaul.

"They are bamboozling old people. I'm old, but I'm not senile," he said.

In the past, housing associations have gained infamy for dictating standards ranging from the weight of dogs (one mandated a diet for a hound) to whether residents can kiss in their driveways (not if they don't want a fine).

Homeowner associations have banned lemonade stands, solar panels, and hanging out in the garage. One ordered a war hero to take down his flag because of a "nonconforming" pole. Another demanded that residents with brown spots on their lawns dye their grass green.

Now, many property owners in associations owe more than their homes are worth, and some have stopped paying their association dues.

To combat the rise in delinquencies, boards are switching off utilities, garnisheeing income, and cutting off cable service. In the most extreme cases, they are foreclosing.

"The treacherous part is that homeowners' associations are acting like a local government without restraints, and they have this extraordinary power," said Marjorie Murray, a lawyer and founder of the Center for California Homeowner Association Law.

Today, one in five U.S. homeowners is subject to the will of an association, whose boards oversee 24.4 million homes. More than 80 percent of newly constructed homes in the United States are in association communities.

And of the nation's 300,000 associations, more than 50 percent now face "serious financial problems," according to a September survey by the Community Association Institute.

An October survey found that 65 percent of associations have delinquency rates higher than 5 percent, up from 19 percent of associations in 2005.

Associations levy monthly dues, typically between $200 and $500, and cover the costs of services that a municipal government usually takes care of: road repair, streetlights, sewage systems.

If an association's budget is strained or major repairs need to be done, the board can levy a "special assessment" in addition to those dues.

And when one homeowner doesn't pay those fees, all the other homeowners have to pick up the cost.

The rise in delinquencies occurs as banks are taking over foreclosed homes and leaving them vacant.

Before now, associations rarely, if ever, foreclosed on homeowners.

But today, encouraged by a new industry of lawyers and consultants, boards are increasingly foreclosing on people 60 days past due on association fees, said Evan McKenzie, a former homeowner association attorney who is a University of Illinois political science professor and the author of Beyond Privatopia: Rethinking Residential Private Government.

The government does not keep statistics on how often homeowner associations initiate foreclosures. But a nonprofit research group found that association-initiated foreclosures in the Houston area jumped to 2,200 in 2007 from 500 in 1995.

Most association-related foreclosures in Texas do not go through the judicial process, so the group's analysis represented only a fraction of the foreclosures that housing associations have initiated.

In exchange for adhering to the rules, homeowners got safe communities with clubhouses, pools, and tennis courts.

But what many didn't realize when they bought their homes was that the fine print gave the association the right to foreclose -- even over a few hundred dollars in unpaid dues.

All the association board has to do is alert its lawyer to place a lien on the property to start the process. The home can then be auctioned by the board until the bank eventually takes ownership.

Homeowners typically have no right to a hearing.

The problems in some communities are resulting in more scrutiny.

In Nevada, the FBI is investigating corruption in elections of association boards. In Utah and Arizona, legislators are trying to pass bills that would root out the use of debt collectors who are alleged to have tried to strong-arm residents into paying fees.

State legislatures in California, Arizona, North Carolina, Texas, and Florida have taken up legislation that would clamp down on foreclosures.

Not everyone thinks the tactics are out of line, though.

"When people are not paying their assessments, they're not shortchanging some giant multinational corporation. They are taking money directly out of the pockets of their neighbors," said Andrew Fortin, head of government affairs for the trade group Community Associations Institute.

So the neighborhood feuds are escalating.

At Inlet House, one resident alleged that fellow residents vandalized her car in retaliation for not paying her dues.

In all, 17 of the 60 units are in various stages of delinquency.

Paul Gray, a fastidious budgeter, paid off his mortgage long ago and paid all but $2,500 of the Inlet House assessment. The association initiated foreclosure proceedings.

A few days after he received the foreclosure notice, Mr. Gray, who had a history of strokes, suffered another, three friends said. Now he is in a nursing home.

He has since paid off the $2,500. His home, worth $89,000 in 2006, is for sale for $18,500.

In the meantime, the board, facing $172,000 in costs from nonpayers, has raised dues by $50 a month to an average of $375. Some residents complain that between the assessment and increased dues, they pay more than they would to rent at an oceanfront complex down the street. Association manager Janice Stinnett, who is also an Inlet House resident, says she isn't to blame, the nonpayers are.

The board is continuing to make the plumbing repairs that triggered the assessments. It will soon issue another special assessment to cover the costs.

Homeowners who opposed the repairs on the grounds that they were too expensive are angry. Said Mr. Silvestri, "What these associations are doing is illegal. It's a fraud."