If you wanted to sell your home in a Homeowners Association, what would be a best case economic scenario for you and your prospective buyer? You’d want that buyer to be able to get a loan, right?
If you wanted your home to be more marketable, you’d want your HOA to seem less litigious, right?
If you wanted a quick sale, you’d want all HOA homes to be owner-occupied, right?
And to get top dollar for your home, you’d want no vacancies in the neighborhood, right?
Well, let’s toss a monkey wrench into the machinery and see what happens.
The housing bubble that popped in 2008 and 2009 led to a huge number of foreclosures as mortgage companies tried to limit their losses. It also led to more Homeowners Associations liening and foreclosing on homeowners who got behind in their dues. The typical HOA has a super-priority lien on all homes within its borders. That means that when the homeowner gets a few hundred bucks behind on his mortgage, the HOA can grab that property and auction it off at the nearest courthouse for a few thousand bucks. The HOA gets paid, the mortgage company does not. And that means the mortgage company gets screwed out of the entire value of its loan.
Now, suppose you’re an executive in a mortgage company. If you know that a certain neighborhood is in crisis, i.e., foreclosures, lawsuits against owners, a high number of vacancies, a high number of rentals, and the HOA doing its own foreclosures through super-priority liens, how willing would you be to offer mortgages to would-be buyers?
Thought so.
If you happen to be the homeowner who’s trying to sell a home in a neighborhood where no potential buyer can get a loan from traditional lenders, what do you do? You lower your price, lower your price, lower your price, lower your price.
And the housing bubble bursts. The economist linked below thinks the housing Armageddon is coming.
(link to the coming housing bubble)
Uh, no.
The home owner who has been divested of his property is still obligated to pay the mortgage. *
The mortgage company can also exercise its first lien rights, and foreclose on the H.O.A. corporation. However, mortage companies usually take months (sometimes over a year) to foreclose on a home owner, while an H.O.A. corporation can do so within weeks, often without oversight by a court.
This lag has resulted in H.O.A. corporations creating a new business model — quickly foreclosing on home owners for trivial amounts and reasons, and then renting the property until the mortgage holder forecloses on it. ** One H.O.A. attorney has justified this by saying that “It’s called capitalism. It’s the free market”. ***
— notes —
* This varies from state to state, but see for example the Deer Path Woods incident in Pennsylvania, Madison Oaks and the Oasis condos in Florida.
Conservatives and libertarians are in favor of “full recourse mortgages” — holding the home owner personally liable if the property is foreclosed upon for less than the balance of the mortgage (based on my readings of conservative and libertarian blogs, especially since the housing crisis). Evan McKenzie has written (emphasis added):
** According to Colorado H.O.A. law firm HindmanSanchez P.C. (emphasis added):
*** Robert Tankel, Florida attorney # 341,551, and member of the Community Associations Institute, quoted in
“Real Estate Investors Beat The Banks To Profit On Foreclosure“. Tampa Bay Times. June 25, 2011. see also
“Pinellas Lawyer Takes Foreclosure Fights To Ethical Edge” Tampa Bay Times. July 01,2011.
Tankel was doing so much business that he had to increase his staff from 3 to 16 (see also here). That’s a 433% increase! Tankel is what Republicans call a Job Creator™.
Well, Robert, once again you’ve caught me. You are a heck-of-a-lot closer to what really goes on with these crashed mortgages than I am. I do trust your research.
One last love note on how dangerous the HOA happens to be. If they grab your home and sell it… the mortgage is still due. If you walk away from that debt the IRS will consider the mortgage at full value and it will be considered as regular income. You will receive a huge tax bill and possibly a huge IRS fine because it will take a couple years and you by law have to declare income the year received. You will not win in a fight with the IRS. The have have thousands of cases just like yours. Hopefully the public will start to understand the danger of HOA life and start demanding these HOAs obey the law just as everyone else has to do. The housing market cannot really recover with the present horror which is brought by the evils of the HOA system. Remember, the HOA was created to protect the developer. It has nothing to due with protecting the homeowner.