Last Call…Who Gets Stuck With The Condo?

guest blog by Nila Ridings

Occasionally I talk with a condo or HOA homeowner who tells me they are working to pay off their mortgage so they can leave the property to their kids debt-free when they die.  None of us knows when we are going to take our final flight, but we all know the risks of owning in a condo association or HOA.  For those who don’t, I’d suggest spending time on this website and reading Ward’s book, Neighbors At War!
 
I’ve watched the results of this plan play out over the past few years.  When heirs live out of state they sell for whatever they can get or turn their new property into rentals.  Rarely, do they move into the unit.  And they have no clue what is going on inside of the HOA , who is running for the board, how many lawsuits are pending, or if the HOA has taken out a million dollar loan.  They’re clueless and have absolutely no interest in knowing more.
 
If they can’t get the property sold and don’t want a rental, they are stuck paying monthly dues to the HOA. While there is no water, sewer, or trash usage during that time the HOA bill continues, along with taxes and insurance.  If at some point the HOA slaps a lien on the property there is an amount to be paid that nobody knows about. Or, the lien was satisfied but the HOA never released it.  Possibly the deceased wasn’t aware of it, but it’s there and it has to be paid before the place can be sold.  Or an assessment pops up and heirs are on the hook to pay that, too.  Suddenly, this inherited real estate becomes a pain in the neck and/or a financial burden to someone who can’t afford the extra expense or deal with all the added stress.
 
We learned in Neighbors At War that mortgage-free HOA properties also become targets for non-judicial foreclosure.  Since corruption never misses an opportunity the dead are not exempt from HOA abuse either.
 
During a recent conversation with an HOA property owner I learned something that I expected was coming.  This individual wanted a reverse mortgage only to learn that isn’t possible because the HOA is not FHA approved.  The advice given was to take out the maximum amount in a mortgage, enjoy life with the money, and when the money runs out or the final breath is taken, the kids can let the property go back to the mortgage company and walk away.  If the HOA opts to foreclose, so be it. (Who needs a good credit rating to get into the cemetery?)
 
Bottom line is: hundreds of thousands of dollars tied up in a covenant controlled and often times corrupt HOA is not a way to leave your heirs feeling loved.  It could bring them a financial burden that could drastically change their lives and leave them feeling angry with you for leaving them in such a financial mess.
 
No one lives without dying.  Careful thought should be given to how we wish to be remembered.  Hopefully it won’t be that generations to come are left sitting around holiday decorated dining room tables discussing Mom and Dad or Aunt Matilda’s HOA nightmare that was “supposed” to be an inheritance!

6 thoughts on “Last Call…Who Gets Stuck With The Condo?

  1. Arizona Dave

    Good information. Truth be told only 25% of condominium complexes can even qualify for FHA approval. Just because your association is FHA approved now, it may not be down the road.

    Once your association has more rental properties than owner occupy units, kiss that FHA approval goodbye. If your association fails to have the required reserves, your FHA approval vanishes.

    I agree. Unless you have a relative you really dislike, don’t leave a burden for those you love. You may be better off to leave that HOA property to the Hare Krishnas provided they stay out of the airports.

    Reply
  2. Robert

    Back in 2011, Evan McKenzie said that

    
”The condominium…it’s kind of almost a fictional real estate interest. These things can only exist by statute…Condominiums can only exist where statutes authorize them to exist. So we’ve had them since about 1960.”



    Steven Siegal — one of the attorneys in the Twin Rivers case — wrote that

    “Before 1960, the condominium form of ownership was unknown in the United States. Beginning in the early 1960s, the states began enacting statues authorizing the condominium form of ownership, principally in response to the enactment of the National Housing Act of 1961, which extended Federal Housing Administration mortgage insurance to the condominium form of ownership. See McKenzie, supra note 2, at 95. By 1967, all fifty states had enacted condominium statutes. Id. at 95–96.”

    – “The Public Role in Establishing Private Residential Communities” Urban Lawyer. Fall 2006. Footnote 23 on page 869.

    Tyler Berding has written extensively about the condominium ownership being an unsustainable form of real estate — much of which should be required reading for our policy makers. For example, “The Uncertain Future of Community Associations“. Fred Pilot even coined the phrase “Tyler Berding’s Death Spiral” to describe the inevitable death of condominiums.

    In dying condo complexes like Deer Path Wood and Madison Oaks, the home owners were stuck with the obligation to pay off their mortgages, even after the H.O.A. corporation had sold off their property to investors, to be converted to rental apartments. And we accept this type of insanity as normal.

    Since there is no common-law basis for condominiums, condominium ownership can only exist by statute, maybe it’s time to think about prohibiting condominium ownership — or at least any new construction of condos. It’s a failed legal fiction that has caused a lot of harm to both the individuals involved and the economy as a whole.

    Reply
  3. Robert

    the HOA slaps a lien on the property…the lien was satisfied but the HOA never released it.

    This happened to me, and is documented in detail in Chapter 07 of my book, Madison Hill H.O.A.

    Obtaining liens, and selling them to 3rd party investors, is one of the services offered by H.O.A. law firms. For example, HindmanSanchez P.C. advertised on their web site that

    HOA Liens For Sale
    Colorado currently holds the dubious honor of leading the nation in lender (or “public trustee”) foreclosures. HOALiensForSale is a service we offer which will benefit your association and its bottom line.

    See HOALiensForSale.com for a list of association assessment liens belonging to thier clients on properties that are currently in public trustee foreclosure.

    Imagine the perverse incentives that must create in the pursuit of profit.

    But Robert Tankel, Flordia attorney # 341,551 and C.A.I. member, justified this type of business practice by saying that “It’s called capitalism. It’s the free market“. Because nothing promotes the ideas of capitalism and free markets more than kicking people out of their homes for trivial amounts and reasons so some collections attorney can make a profit from a real estate “investment”.

    Tankel’s business was doing so well that he had to increase his staff from 3 to 16 in 2008 – 2009 (see also here). That’s a 433% increase! Robert Tankel is what Republicans call a Job Creator ™.

    H.O.A. foreclosure — an absolutely insane idea that we accept as normal.

    Reply
  4. Nila Ridings

    Many thanks to Arizona Dave and Robert for shedding more light on this subject.

    I’d say this is confirmation that liquidating and moving into rental property prior to death, if possible, is the answer. Otherwise, a non-HOA property with a living trust in place makes sense, too. But the burden of a condo or HOA property could leave scars on the hearts of your loved ones.

    I also agree with Robert about Tyler Berding’s ‘The Uncertain Future of Community Associations.’ It’s an excellent report to read. Thank you, Robert for providing the link to it.

    Reply
  5. tom dee

    HOA and the abuse they do every day exist because people do not get involved and trust their elected ones not to pass laws which would benefit only a few. What a mistake. There is just not one elected official who is not subject to bribes. There is no organization who looks into political bribes. Oh yes I know there are plenty of public officer who you believe looks out for homeowners but reality happens to be they do not. I feel once it was nice to have our house paid off but now I believe it better to have a big mortgage so the HOA knows your not a good choice to fleece. I think a new scam will be families under water getting the hoa to get the property. That way they did not walk away and get a big tax bill but forced out and they can take a loss. I only thing sure is one has to be stupid to buy property with an HOA anchor attached.

    Reply
    1. Ward Lucas Post author

      Actually, Tom, I think you’re right on target. I once thought that having a paid-off mortgage was a good idea. But if a crooked HOA manager or board officer wants to file a lawsuit and lien, who does he look at first? The guy with the money? Or the guy with the big mortgage? You hit the guy with the paid off mortgage every time.

      Reply

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