Banks Leery of Lending in Some Communities

FOUR CORNERS | For the construction industry, the timing couldn't have been worse: new, expensive subdivisions opened for sale just as the housing bubble was bursting, leaving entire developments with a huge inventory of unsold units.

That high inventory made it tough to sell any of the newly built homes. The competition for so few buyers was fierce, and as a result prices have plummeted.

But now some local Realtors say these subdivisions are facing a new, equally serious challenge: collapsing homeowner associations that can no longer afford to pay basic bills, because so few of the remaining homeowners are sending in their monthly HOA dues.

"The HOAs are a mess right now," said Sean DePasquale, a senior loan officer with Florida Mortgage Partners Inc. He said this is a particular problem for condominiums that have a lot of unsold or foreclosed units, and it's tough to get a mortgage these days for anyone interested in buying one of these units at a bargain basement price.

"Condos are not even on the radar right now for loans," he said.

Pete Howlett, a Four Corners Realtor, said some of the local subdivisions are plagued by a high number of short sales, where the owner can no longer afford their mortgage and attempts to sell the property at a loss. Their hope is the bank will agree to accept the lower asking price and write off the remaining debt.

"Some of them have so many short sales right now," Howlett said. As a result, banks are leery of writing loans to potential buyers who want to take advantage of the low prices.

"I have seen that in several communities that have HOAs," Howlett said.

Homeowner associations were intended to be self-governing boards that oversee new developments and subdivisions built in unincorporated areas like Four Corners, Celebration and Poinciana. HOAs set the rules that the homeowners within the development live by, and collect the dues that finance everything from landscaping and upkeep on the common grounds, to construction of new roads or clubhouses within the community.

But many of the subdivisions that started construction at the height of the housing market in 2004 and 2005, when demand for new properties seemed highest and many of the units pre-sold before construction work was even completed, suffered painfully from the market crash. Some people cancelled their contracts to purchase a home within the development, even if it meant losing a hefty down payment, while other units fell into foreclosure, and some of these subdivisions have come to resemble ghost towns.

For a lot of the HOAs that govern these subdivisions, the rising foreclosure rate has meant the dues they collect are disappearing.

As a result, Howlett said, these subdivisions have a bad reputation and banks are reluctant to finance loans to new buyers who want to get into one.

"Most of the buyers we get, we take them to places without HOAs," Howlett said. "Otherwise they have major problems with people who have not paid their HOA dues. These dues have to get settled at closing. The banks are not lending these days in HOA communities."

Howlett said he's seen instances where as an inducement to buyers, the developer offered free cable. But some HOAs have been unable to pay their cable bills and the cable companies have shut off service to the entire subdivision or condo development.

"In one instance Bright House didn't get paid, and it was quite the stalemate for a while there," Howlett said, adding that the cable company finally agreed to set up accounts with the individual homeowners still living in the development.

"I think they realized they would not get paid by the HOA, so they might as well allow the individual homeowners to get the service," he said.