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?
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.