Property associations struggle as owners miss payments

Article Courtesy of The Times Union

By Kevin Turner

July 7, 2009

With the economy in an extended slump and real estate along with it, there's myriad reasons why a Jacksonville homeowner or condominium owner might not be able to pay his or her property owner's association fees.

People who have always kept up with their bills suddenly find themselves choosing which bills to pay and which to let slip. Homeowners and condominium associations are under the gun, too. They are bound by a residential community's covenants to fulfill their obligations for amenities, maintenance and services in common areas and various other things, and their budgets are designed to raise only what they need.

"People who don't pay dues might be faced with the choice of paying the mortgage or the homeowners association. That's the problem," said Dan Vargas, president of the San Pablo Creek Homeowners Association.

Vargas' property association is able to meet its obligations, he said. About 80 percent to 90 percent of its members pay their dues, and the ones who haven't are "just late," and expected to pay, he said.

But other property associations around the Jacksonville metropolitan area aren't as fortunate, said Sentry Management Northeast Florida Regional Manager Gordon Wolfram. Sentry performs management services to about 150 home and condominium associations in the Jacksonville metro area, he said.

Dan Vargas is president of the San Pablo Creek Homeowners Association. For the past year, he has talked with owners and some renters about what they want in their association. Many homeowners associations do what they can to reduce expenses when property owners can't afford to pay.

Just two years ago, most association boards used to have about 3 percent of their memberships "in collections" for overdue fees, Wolfram said. Today, that's swelled to 10 percent or more, he noted. Doug Harrier, division director of Leland Management, another company that performs management services for association boards, agreed.

"They're nonprofit," Harrier said. "If five people don't pay, they have an issue. They're in a deficit situation."

Thus, many associations do what they can to reduce expenses.

"They, as a board, have to be really creative how they spend money," said Elaine Brooks, president and owner of Property Management Partners, another firm that does management services for associations. Brooks and Wolfram said they might cut corners on lawn mowing and similar maintenance, beginning with the work done for less and possibly including skipping areas. That can get to a point where major maintenance is neglected and owners complain, Wolfram said. And associations are obligated to pay utility bills and insurance, which aren't as negotiable, he said.

When homeowners aren't paying their fees, associations have few other options. They can raise association fees, forcing members who pay to shell out more. And under many association covenants, boards have the right to impose a lien and even foreclose against a non-paying member's property.

LOTS OF LIENS BUT FEW FORECLOSURES

Nearly 30 percent of the liens filed in the Duval County Clerk of Courts office in June were initiated by Jacksonville homeowners or condominium association boards. But just four-tenths of a percent of the initial foreclosure filings were from the associations, suggesting the groups are either working with homeowners after filing liens or that they hesitate to spend the money to foreclose on a property already in mortgage foreclosure.

LIENS

1,538 - Total liens in June

221 - From condominium owners associations (14 percent)

230 - From homeowners associations (15 percent)

FORECLOSURE INITIATIONS

1,331 - Foreclosure initiations in June

26 - From condominium owners associations (.2 percent)

23 - From homeowners associations (.2 percent)

Avery McKnight, homeowner in The Landing at Cross Creek subdivision near Kernan Boulevard and Atlantic Boulevard, and James Wright, homeowner in the Parque Diane subdivision near Oceanway on Jacksonville's north side, both refused to pay, they said, because they thought their associations weren't doing enough for residents.

McKnight said neighborhood activities have vanished, and the subdivision has had lighting outages, gate problems and unkempt areas.

"The reason I didn't pay dues is they weren't doing anything wisely with the money," Mc-Knight said.

Wright, who was one of 15 property owners against whom the Parque Diane Homeowners Association filed a lien June 4, received a lien for about $300 against his home, he said. He said he thinks the association should be more sympathetic to homeowners facing financial trouble and has stepped forward to be elected to the association board, he said.

"Many people have lost their jobs, and they don't have the money," he said. "I'm probably going to go ahead and pay it, but I'm not going to let this go by."

For McKnight, things went further, and he received notice that the homeowners association had begun foreclosure.

"I was upset, knowing that because you haven't paid your association fees, they can foreclose on your house," McKnight said. "I was very upset, but what can you do?"

That motivated him to pay the back dues he owed, he said. Duval County Clerk's Office records show he received a lien of $1,612 in 2007, but years of interest and fees have ballooned the amount to $4,700, he said. Under a payment plan, he'll have it paid off by December, he said.

"What's more important is my family having a place to stay," he said.

Wolfram said when an association's foreclosure is complete, the deed to the house in question goes to the homeowners association - if a foreclosing bank isn't also pressing foreclosure action against the homeowner. But if the association takes the deed first, the board is the homeowner's landlord and can charge rent, or even evict the former property owner and bring in another renter. Meanwhile, the homeowner still is liable for the mortgage on a house that's no longer his or hers, Wolfram said.

And if a bank takes the title in a mortgage foreclosure, then the bank must pay the association six months of the overdue fees, or 1 percent of the mortgage - whichever is less, he said.

Harrier said homeowner eviction is an extreme example of what can be done and that he doesn't know of any examples in the Jacksonville area.

A search of the Duval County Clerk's Office records indicates that the number of association-initiated foreclosure filings was only a small fraction of association-initiated lien filings, indicating that most associations are working with non-payers, rather than dropping the foreclosure bomb.

"If you send out five lien notices, probably three out of five will pay," Brooks said. "A lot of people don't know they can get a lien for that, they don't know what it means, and it frightens them."