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Financing

When the homeowners association is on the hook

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 (iStock)

I’ll be honest. Most of the time I am advising homeowners on how to protect themselves from their HOA. But when I sat down with Marshall Goldstein in a beautiful development in Florida, I found myself on the other side of the equation.

Homeowners associations (HOAs) are the governing bodies that may exist in single-family housing developments or condo and townhouse complexes. Their stated purpose is to help maintain good relations among neighbors, keep property values stable and provide a mechanism for democratic decisions about expenditures for repairs and amenities, such as tennis courts, swimming pools and golf courses. HOA boards consist of volunteer members who may or may not have the professional expertise needed to deal with issues that arise.

In some cases of foreclosure, homeowners will choose to walk away from their homes. Having run out of hope, they step aside, and the lender steps in and takes over the property. If a single house in a neighborhood is abandoned, the homeowners immediately adjacent to the property will be most affected. If multiple houses are left empty and unattended, the HOA is likely to face significant safety issues, and the value of the entire community is put at risk.

If a foreclosed home is becoming an eyesore and you are on an HOA board, you can take specific steps to help your organization reclaim and restore the neighborhood without compromising the fiscal stability of the HOA:

  1. In most cases, the people who feel the impact of abandoned homes are the ones who confront the HOA and demand action. But the HOA’s rights are limited. While assuring association members that you are taking the necessary steps to protect the quality of their neighborhood, you need to let them know the limits of your authority up front.
  2. Decide your level of financial commitment. Can you afford to use HOA monies to update and repair an abandoned home? Will the neighborhood be able to support future assessments to deal with rehabbing neighborhood eyesores?
  3. Assess the condition of the home before deciding if you want to exercise your rights under the laws of your state. This poses a particular problem because, in most cases, unless there is an apparent safety or health issue, HOAs cannot enter a private residence without a court order. You’ll be able to identify issues with the exterior, but you probably won’t know what’s going on inside the house.
  4. So what can you do if you can assess the house only from the exterior? You need to bring in outside authorities. The HOA can and should contact the appropriate city division to ask it to enforce safety or code violations that apply to the outside of the house, such as covering an unused pool that poses a safety hazard. In this way, at least, the HOA is taking a proactive role in protecting the integrity of the neighborhood and the adjacent property owners. 
  5. In almost every state, an HOA has the power to place liens on property for nonpayment of membership dues. Once the lien is filed, and with legal counsel representing the board, it can exercise its foreclosure rights (either judicial or non-judicial, depending on the state.)
  6. Once the HOA has foreclosed, depending on the integrity of the home, it is possible in most cases to attract investors who will purchase it – sometimes sight unseen. The prevailing issue then becomes that the lenders may decide to move forward with the foreclosure, and the new owners will have to deal with them. Recent rulings in the Nevada Supreme Court have offered relief in this situation, declaring that if the lender is on notice of the HOA-initiated foreclosure and doesn’t act, the first mortgage is expunged.

From everything I’ve seen, this can be an HOA’s biggest challenge. As a board member, you need to make decisions that are in the best interest of the neighborhood. And, based on most cases I’ve seen, you need to realize that you can’t please everyone. But remember: Your role on the board may be that of a volunteer helping to look out for the interest of others, but your personal financial security is tied up in the health of your neighborhood as well.  

Robert Massi joined Fox News Channel (FNC) in 1996 and currently serves as a legal analyst as well as host of Bob Massi is the Property Man, part of FNC’s weekend lineup (Saturday, 12 p.m. ET / encore Sunday, 3 p.m. ET). The program highlights the various facets of the housing industry and features experts who break down current property trends and pricing deals. Massi appears weekly on Fox & Friends for his segments “Rebuilding Dreams” and “Legal Ease” along with appearing at other times on Fox News Channel and Fox Business Network (FBN) for real estate and legal segments.