The fallout from the housing crisis has led to yet another worry for potential homebuyers: homeowners associations. Depending on the housing or condo development, homeowners associations can range from fairly minimal importance to extremely important. The more things the homeowners association is required to take care of, the more important they are. Typically condo homeowner associations take on more responsibilities because they are responsible for all the common areas, but many new home developments have been piling on added duties for their homeowners associations. Now, thanks to fallout from the housing crisis, many homeowners associations are in shambles and homeowners are feeling the pain.
In one development in Arizona, more than 40 percent of homeowners are not paying their homeowners association fees, and in others across the country, it is even worse according to USA Today. Typically, a homeowners association’s retaliation for non-payment is that they are able to place a lien on the delinquent homeowner’s home, but because property values of dropped so much and there is no equity in most of the homes, it isn’t doing any good. With the collection of unpaid dues appearing unlikely, the burden to maintain the homeowners association falls on the remaining homeowners who have paid their dues. If they fail to cover the excess, they will be faced with decreased services. Some of the problematic associations have even tried to put together volunteer days where homeowners can help provide some services themselves, such as landscaping, and save money.
Investors and homeowners alike should take note of this problem. The last thing (OK, one of the last things) an investor wants is to buy a house and then find out that the homeowners association is out of money so they can’t afford to keep up the grounds anymore, or they are going to have to cut insurance coverage. At that point, either the investor is going to have to pony up some more money or else watch the neighborhood go to waste along with the value of their investment, which might just happen anyway. Neighborhoods which are having trouble collecting on homeowners association dues are probably a safe bet to suffer from foreclosure and homeowner neglect: If people can’t afford to pay their homeowners association dues, they probably can’t afford the mortgage either or they could be investors who are simply walking away from a bad investment. Either way this is a bad sign for incoming homeowners.
That being said, investors and homeowners who are looking to buy a home in a development or condo with a homeowners association would be wise to take the extra step to examine the homeowners association’s books and responsibilities. If they see that an increasing number of homeowners are late or not paying, that could be a sign to move on, especially if the homeowners association has a lot of responsibilities. Even if you think you are getting a great deal on the property if the neighborhood’s upkeep goes, so goes the appeal and value of the neighborhood. In today’s market investors can be picky, so take the extra couple minutes to look at the books. It may just save you a big headache and hit to your pocketbook.