The War on Foreclosure


By Christopher Durso

Article Courtesy of "Common Ground"

From the July/August 2004 issue

Spurred on by several well-publicized, controversial cases, state legislatures are considering more and more limits on association foreclosures. But do they need that kind of scrutiny?


The stories sound terrible, especially when they're related in the bold, broad strokes that encourage outrage. In Calaveras County, California, a retiree who fell behind on a year's worth of dues to his homeowner association—$120 in all—had his house and three acres of property sold at auction last December. Two months before, in October, an association in Gilbert, Arizona, moved to foreclose on a single mother who was battling breast cancer and owed $393 in overdue assessments. Down in Jupiter, Florida, a Marine veteran is facing the loss of his home for $20,000 in legal fees and other charges he owes his association after unsuccessfully fighting to keep a 12-foot flagpole in his front yard. And, of course, back in 2001, there was Wenonah Blevins, the elderly widow who started out owing her Harris County, Texas, association $814.50 in back dues, lost her house, got it back, and became a poster child for the victims of abusive HOAs.


But when you peek beneath the surface of these cases, and set aside the immediate, visceral reaction provoked by any tale of a person losing his home, things get fuzzy, and so does the entire debate over community associations and foreclosure.

The California retiree, for example, simply overlooked his payments for a year—even though, as required by law, the association sent him several notices about possible foreclosure, and its collection service says it tried to collect from him dozens of times. And the Marine in Florida has been clinging to his flagpole for several years now, running up everyone's legal bills in the process—even though he's always been free to fly a flag from a bracket on his house.


The bold, broad strokes shock and appall, but the smaller, closer details confuse and contradict, and prompt a host of questions. Who has the greater obligation—the owner, who has agreed to pay assessments to the association in a timely manner, or the association, which is bound to collect assessments in a fair and equitable way? Does the association's duty to provide services to the entire community always trump its commitment to individual owners? And, are these messy, high-profile foreclosures the norm, or just anomalies that have inflamed people already suspicious of homeowner associations?



You can get lost in the fog of these and other legitimate questions surrounding association foreclosure, starting with the biggest and most basic one of all: Why do associations have this power granted very few entities in American society—the power to take someone's home?


"At some point, the responsibility has to be on the person who's not paying their assessment," says Dan Shapiro, Esq., a partner with Wolf, Rifkin, Shapiro, & Schulman, LLP, in Los Angeles, which represents more than 2,000 associations and management companies. "If the law firm or the trustee that is doing the collecting is following the rules and the person is just not doing what they're supposed to be doing—paying—what alternative is left to the association? If they don't proceed with the foreclosure and the word gets out they're not proceeding with the foreclosure, why would [other owners] pay? People are going to stop paying, and then the association is really in a fix." That's especially true for smaller communities that depend on their assessment income. "Say you're in a condominium, and it's a master-metered condominium, meaning the association also pays the electric," says Margey Meyer, CMCA, PCAM, president of Prime Site Inc., AAMC, in Houston. "You're talking about fees that could be $800 or $1,000 a month. So those delinquencies add up quickly, and the association can really get hurt if you let it go too long."


Pat Haruff, who is the president of an Arizona-based group called Concerned Homeowners for Reform and Education (CHORE), doesn't think much of that argument. In fact, she thinks the association industry is something of a Chicken Little, constantly warning about widespread homeowner rebellion and financial dissolution when in fact very few communities ever declare bankruptcy. "You're always going to have [people who don't pay what they're supposed to]," Haruff says. "That's why we pay more for our clothes, for our cars, for our electricity. There are just people in life, no matter what it is, they're just not responsible and they're not going to pay. I just don't believe that will ever change."


Trying to stake out a middle ground on this issue is difficult, but among the groups that have tried is CAI, whose position is rooted in the idea that assessments protect property values by funding the delivery of tangible services, including maintenance, trash pickup, and landscaping, not to mention amenities. According to CAI President Paul Grucza, CMCA, AMS, PCAM, while legitimate financial hardships should never be ignored, owners who are able to pay their assessments but don't are cheating their neighbors, and the process of foreclosure is often the only leverage associations have to ensure they fulfill their obligation. That said, says Grucza, vice president and chief financial officer of Consolidated Community Management, AAMC, in Tamarac, Florida: "Foreclosure should always be the avenue of last resort after exhausting every other means available to protect the debt owed to the community."


While these and other questions are plentiful and definitive answers elusive, the debate has inspired state legislatures across the country to act, in many cases spurred on by groups like CHORE that claim money-hungry associations—and their attorneys—are simply running foreclosure mills. The issue has been particularly hot in Arizona, California, and Florida, all of which have introduced legislation this year that would limit associations' power to foreclose. Not surprisingly, they all follow Texas, which had its own legislative reckoning with association foreclosure three years ago, in the immediate aftermath of the Blevins case. The result was the Texas Residential Property Owners Protection Act, also known as the Wenonah Blevins Act, which among other things prohibits homeowner associations—but not condominiums — from foreclosing solely to collect fines or attorney's fees based on fines, limits attorney's fees for nonjudicial foreclosures, and gives owners 180 days to buy back their house after foreclosure, a guarantee known as the right of redemption. Various measures before the Arizona, California, and Florida legislatures have similar aims, though their scope varies widely.


Arizona. Gilbert Mayor Steve Berman told the East Valley Tribune that State Rep. Eddie Farnsworth was "livid" over the plight of Evelyn Lyles, the breast-cancer patient who faced foreclosure last year. (Eventually her home was saved by an anonymous donor who paid off the dues and fees she owed.) And, sure enough, this year Farnsworth introduced a bill that in its original form would have prohibited all condo and HOA foreclosures until seven years after a delinquency started, and would have banned outright foreclosures for fines. Scott Carpenter, Esq., a senior partner with Carpenter & Hazlewood and chair of CAI's Arizona Legislative Action Committee (LAC), says the LAC balked at the seven-year moratorium but approved of the fines provision. Meanwhile, CHORE championed the entire bill. Eventually, a modified version reducing the moratorium to three years and lifting the fines provision for associations that maintain limited common elements was introduced. It passed the House and the Senate; as of press time, it was awaiting the governor's signature.


California. Here, the state legislature's discussions have occurred in the shadow of the Calaveras County case, in which Thomas and Anita Radcliff started out owing their association $120, which with late fees and collection charges ballooned to nearly $2,000; their property, which had been appraised at $280,000, was sold at auction for $70,000. In February, the Radcliffs' son testified before the Senate Housing and Community Development Committee as the legislature considered proposals to ban nonjudicial foreclosures for less than $2,500 in delinquent assessments and require that properties be sold for at least their appraised value. As of press time, the legislature was still considering these proposals, the authors of which were discussing amendments with CAI's California LAC and other players.


Florida. Amid this year's legislative proposals were a host of measures recommended by a Homeowners' Association Task Force convened by Gov. Jeb Bush, who two years ago visited George Andres, the flagpole-planting ex-Marine, on Flag Day and donated $100 to his defense fund. (Andres faces foreclosure for the tens of thousands he owes his association, but a judge has suspended the proceeding and ordered the sides to try once more to settle the dispute.) While activist groups like Cyber Citizens for Justice (CCFJ) have advocated minimum foreclosure limits, the bill most relevant to association foreclosure would prevent homeowner associations from foreclosing for fines, which Florida condominium associations are already forbidden from doing, and—in a provision introduced by CAI's Florida Legislative Alliance—require HOAs to provide at least 14 days' notice of board meetings at which special assessments will be discussed. As of press time, the bill had passed both houses but had yet to be sent to Bush for signing.

( In the meanwhile the bill SB 2984 was approved by Governor Bush on 06/23/2004)



With all these legislative remedies swirling around, you wonder, are association foreclosures so prevalent, and so routinely abused, that such sweeping measures are necessary? Or is it not coincidental that each of the three legislatures presides over a state that has witnessed a sensationally publicized association foreclosure proceeding within the last year? It's difficult to say, because exact numbers are hard to come by. While a recent survey from the Mortgage Bankers Association found a nationwide decrease in mortgage delinquencies and a slight increase in foreclosures, it doesn't sort its information by housing type. Indeed, there doesn't seem to be any central clearinghouse that tracks association foreclosures nationally.

Instead, each side is left to make its own case. Not long after the Blevins detonation, for example, Beanie Adolph, a Houston activist who says she and her two sons reviewed more than 15,000 association foreclosure cases in Harris County between 1985 and 2001, unveiled an online database that shows a tripling in HOA foreclosure lawsuits filed during that time period. Anti-HOA forces took it as evidence that association attorneys were becoming increasingly predatory, while industry professionals suggested the rise in lawsuits corresponded to a rise in the number of association homes being built in and around Houston.


Around the same time, Clifford J. Treese, CIC, CPCU, ARM, CIRMS, was crunching his own numbers. A veteran association industry theorist (and former national president of CAI), Treese took preliminary information from Adolph's study published in the Houston Chronicle, compared it to mortgage foreclosures nationwide, and found the rates of both association and mortgage foreclosures hovered around 0.37 percent. For Treese, president of Association Information Services, association foreclosures are a red herring hiding the real issue: money. In every foreclosure, whether by an association, a bank, or a county government looking to collect back taxes, there is a debt to be paid, and Treese thinks the debate needs to shift away from who's foreclosing and toward better lending practices and credit counseling. "The thing that causes a twang in the heartstring is somebody—whether it's a widow or not—losing their home," Treese says. "The cure is money. Pay the debt."

Other industry professionals as well as experienced board members offer anecdotal evidence that foreclosures aren't out of line. Margey Meyer, a former chair of CAI's Texas LAC, says that in the 25 years Prime Site has been in business, the company has foreclosed on no more than 10 homes—despite the relative ease of foreclosing in Texas, which allows nonjudicial proceedings. Likewise, Jerry Paluha, president of the 817-home Springs Community Homeowners Association, in Rancho Mirage, California, says there have been foreclosures during his time on the board—but they've been instigated by banks and mortgage companies. "I'm not going to say it doesn't happen, and there are probably some very egregious cases," Paluha says. "But that's probably the major exception to the rule. I have never seen and I don't see where foreclosure is a big problem."


Instead, industry observers in battleground states like Arizona and Florida think any problem with association foreclosures is largely one of perception, with increasingly organized advocacy groups wringing whatever shock value they can from the issue. "There are a group of people in this state who characterize themselves as homeowner advocates, and what they really are is anti-association," says Paul Wean, Esq., the managing shareholder of Wean & Malchow, P.A., in Orlando, and chair of the Florida Legislative Alliance. "And, unfortunately, by dint of repetition, they've gotten the ear of some people in government. These people are driving the agenda at this point."


One of the people Wean is talking about is CCFJ President Jan Bergemann, who sat on Florida's Homeowners' Association Task Force and takes pains to point out that he lives in a homeowner association. He insists that his organization isn't reflexively anti-association. "We're against deadbeats," he says. But, he adds, "Our opinion is that the rules and regulations, or statutes, or whatever you call it, don't protect the consumer enough. We feel it is just unbelievable that people can lose their home for a real small amount of money." Likewise, Haruff serves on the board of her 2,685-unit community in Mesa, which she says allows her to "speak from both sides." Her group, she says, isn't anti-HOA but rather pro-homeowner.


But Carpenter, who frequently squares off against Haruff, says CHORE and other organizations like it seem to coalesce around the foreclosure issue, and use it to tarnish the entire industry. "We have thousands and thousands of people who live in associations in Arizona who aren't saying one word about it one way or the other," he says. "There are a handful of people who feel strongly about foreclosure who think it's bad [and] who are very vocal.... The best I can tell, there's no more than a dozen or two dozen people who are leading the anti-HOA movement." For them, he says, foreclosure is "so big, it's like it's the only issue."



Activists don't disagree with that. Truth be told, however, Haruff says she doesn't think association foreclosures themselves are that big of a problem. Although the process varies from state to state, the standard procedure is fairly cut-and-dried. Once an association has sent out its own reminder letters, warning notices, and certified demands to a delinquent owner, it turns the matter over to a lawyer, who sends one or two more certified letters. Assuming the owner still hasn't paid, the attorney files a lawsuit seeking court approval for the association to foreclose on the lien, there's a trial before a judge or jury, and, if there's a verdict in favor of the association, the house is foreclosed on and sold at auction. Proceeds go first to pay what's owed to the association, with the remainder of the money going to the owner. If the party who bought the house at auction wants the owner to leave, there's a separate eviction proceeding that has nothing to do with the association.


All this might be fine, Haruff says, except it almost never happens that way. "What happens is, the actual foreclosure never comes to fruition," Haruff says, "the reason being that the homeowner is intimidated and threatened with the loss of their home if they don't pay the fine for leaving their garbage can out too long or planting a shrub that's the wrong size." If a homeowner ignores or overlooks the fine, an attorney usually gets involved, and next thing you know a $100 fine has turned into a $5,000 debt. "That's where the problem really lies," Haruff says, "in this intimidation and threats with these fines." There's also the fact, she says, that foreclosed homes are often sold for a fraction of their appraised value. It's all too much, too fast.

Haruff is echoed by Rob Edwards, a legislative aide to Texas Sen. Jon Lindsay, who chaired a subcommittee that heard testimony about association behavior. "I think what we found was that the actual loss of property was not a problem," Edwards says. "What was a problem was the threat and subsequent attorney fees that accompany that threat that were a little out of line with what we thought was reasonable for associations."


Indeed, the more people you talk to, the more it becomes clear that the issue is less that association foreclosures happen; rather, it's how they happen. In states that allow nonjudicial foreclosures, including Texas and California, the howls of outrage can be particularly loud. The perception is that associations use nonjudical proceedings—which are also performed by attorneys but don't involve lawsuits or oversight by the courts—to railroad through foreclosure after foreclosure. But in fact, Meyer notes, associations usually use them because they're faster than full-blown legal proceedings and cost about a quarter as much. They're particularly attractive to associations on a tight budget. And the savings is even passed along to the homeowner whose house is being foreclosed on, because there aren't as many attorney's fees that accumulate. So in places like Texas, where you can go either way, which type is used more often—judicial or nonjudicial? "I'd say it's a pretty good toss-up," says Marc D. Markel, Esq., a partner with Roberts Markel Guery PC, in Houston. "A lot of people prefer judicial foreclosure because you have a judge looking over the documents."


To the larger question of their role in association collections and foreclosures and the fees they charge, industry attorneys say they're simply following the law—a growing tangle that includes the federal Fair Debt Collection Practices Act, state condominium and homeowner association acts, and various statutes, plus their communities' governing documents. In every case, they say, if an association and its attorney are doing it right, they're following the law—even when you're talking about Wenonah Blevins.


In many ways, the Blevins case is emblematic of the entire foreclosure debate, because it cuts both ways and, three years after the fact, offers no easy answers. On the surface, it seems to make the activists' points about insidious fees and outrageous resales—with interest and other charges, the $814.50 Blevins owed in back assessments swelled to several thousand dollars, and eventually her $150,000 house was sold at auction for $5,000. But the Blevins foreclosure also makes the association's case, because it was technically correct; the association and its attorney sent Blevins every notice they were supposed to, as required by law, and then some. But then, at the very least, doesn't it highlight the abuse potential inherent in the nonjudicial model? Well, no, because even though the association had that option, it decided to file a lawsuit. But then the pendulum swings back to the activists' side, because Blevins claimed she never once heard from the association; she didn't get any of the delinquency or foreclosure notices, including the foreclosure lawsuit. But then the pendulum swings the other way again, because, according to Markel—who didn't handle any of the collection or foreclosure proceedings but represented the association afterward, when Blevins sued—the process server who delivered the lawsuit to Blevins couldn't make personal contact with her but used duct tape to attach the documents to her front door, and even took a photo of that.

No easy answers. Not even when you hear that Blevins settled her lawsuit with the association for an undisclosed sum, and that the association bought her house from the purchaser and gave it back to her. You wonder, did they have to do that? Could they have saved themselves a ton of legal fees and hate mail by doing more up front? "What else could they have done?" wonders Meyer, whose company wasn't involved in the case, but who debated Blevins' attorney, Marian Rosen, on local TV. "Contacted her relatives? Does our duty stop with the owner, or are we obligated to find someone who understands the implications of the issue? Are we our neighbor's keeper?" In the end, Meyer says, "[The association] did everything right in the foreclosure, other than realize the lady is [82] years old."



One final question, also probably unanswerable: Does foreclosure need to be fixed, fine-tuned, or otherwise reformed? People who say no think, first of all, that the system works fine, and that any attempt to scale it back would be redundant, because good associations already treat their residents with sensitivity and respect. "There are many sad cases," Scott Carpenter says, "and the hope is that the board and the management company will respond to each case separately, as we do here."

Cliff Treese thinks the notion of foreclosure reform is misleading, even insulting. "If you look for the primary cure to be in the association's behavior," Treese says, "it's the wrong focus." A contract is a contract, and that's what owners have with their associations, and vice versa. Adds Carpenter: "Why is the association any worse than the local hospital suing a person for an unpaid hospital visit? It's because people want to believe that the neighborhood is still a friendly place. And foreclosure's not friendly." But, he says, you can't forget that "this whole thing started with an owner who does not pay. So putting the burden of being nice on the association kind of presumes the owner is innocent."


On the other side of the equation, industry professionals and activists alike have some ideas for softening, focusing, tweaking, or overhauling foreclosure.


Right of redemption. Last year, Texas Sen. Lindsay tried unsuccessfully to extend HOA homeowners' new 180-day right of redemption. His aide, Rob Edwards, says Lindsay might try again next year. Similarly, Markel would like to see the right of redemption for condominium owners expanded. Currently, condo owners have 90 days to buy back their home from their association but no guaranteed right if a third party buys it.


Minimum limits. Jan Bergemann, the Florida activist, has been trying to sell state legislators on minimum foreclosure limits whereby a homeowner association could only foreclose on an owner who owed a certain amount of money. (Bergemann doesn't favor the same limit for condominiums because their expenses, including utilities, are often more urgent.) "I think if somebody forgets to pay $100 or $200," Bergemann says, "they shouldn't lose their home for it." But some associations simply don't like the idea of their hands being tied, especially by a generous foreclosure limit. "To go and say you can't foreclose until $5,000 or $25,000," say Jerry Paluha, the California board president, "even our association, which is on a pretty even keel, could get into [financial] trouble."


Escrow. His "wrong focus" quote notwithstanding, Treese does think there's room to improve how association collections are handled. Mortgage companies, he says, should escrow assessments, like they do with property taxes. "That takes care of the vast majority of foreclosure issues," he says. According to Meyer, maintenance fees used to be escrowed until the early 1980s, when there were a lot of foreclosures and mortgage companies didn't want to be responsible for paying the fees. "If [mortgage companies] escrowed for maintenance fees," Meyer says, "let them be the heavies."


Garnishing and eviction. In some states, associations or their agents can garnish the wages and bank accounts of a delinquent homeowner, or even evict an owner without actually selling the house. Where associations can't do that, assessment collection can be more of an all-or-nothing game, with the stakes being house and home.


Personal contact. There's also the idea of an association having mandatory personal communication with an owner before foreclosing. Again, the Blevins case is the textbook example here, showing how poorly a foreclosure can be perceived when there's no face-to-face contact. But the industry is split on this issue. Markel's office, for example, has a detailed internal procedure that must be followed before a property can be foreclosed on. "One of those steps," Markel says, "is personal contact with the homeowner, and that's close to the sale, not up front during collection." But Carpenter is leery of requiring face time because emotions can run very high in these situations. "Enough people have opened the door and spit on board members and even waved guns in their face," he says, "a lot of board members are unwilling to do that."


No fines. There's also the idea of foreclosing only for past-due assessments, not for fines—meaning it would be owners' failure to pay dues and not their flouting of, say, architectural guidelines that would cost them their homes. Florida has considered such a law, much to Bergemann's delight, and in Arizona, Carpenter says that would be okay with him and the LAC


Good boards. Perhaps the most telling thing about the entire foreclosure issue is that, in the end, everyone on every side—attorneys, managers, activists—returns the debate to the people who are responsible for foreclosing on their residents: association boards. "We need to figure out how to force boards to be informed," Haruff says. "[My association] handle[s] over a million dollars a year, and there are people who don't have any clue as to what's going on." But those who do are keenly aware of the responsibility they hold. "To go into foreclosure with a neighbor," Paluha says, "is one of the worst things you have to do as a neighbor. And we're still all neighbors. So that's not something I would rush to."

Christopher Durso is the editor of Common Ground.

Just a little Comment!

By Jan Bergemann -  July 9, 2004

We frequently hear the same boring excuses from attorneys like Paul Wean. His presentation during the HOA Task Force meeting in Orlando was the same old platitude we hear every time the methods of these attorneys and management companies are being attacked. “Just a few ‘disgruntled’ homeowners are unhappy” – “95% of the associations have no problems” -- and similar false and pointless comments.


And yes, it seems we have finally gotten the ear of government officials and legislators, who at last discover that they have been fed wrong information from these attorneys for many years. These attorneys are not representing the associations and the homeowners. Instead they represent certain board members and their own interest to keep the "Status Quo."


Homeowners’ activists have one big advantage -- they are not doing it for profit! Homeowners’ activists don’t create ugly headlines like "Malpractice suit filed against association attorney" or "Class Action Lawsuit against law firm for violation of Fair Debt Collection Practices Act".

It sure enhances the credibility of statements, if the speaker is not involved in these kind of ongoing disputes.


More and more homeowners and legislators realize that the fairy tale of "protecting property values" is just a lame excuse for protecting the cash cow of the industry!


How about the phrases created by homeowners' activists?
"You're Leaving The American Zone!"

"Even the best association is only one election away from dictatorship!"


It might come closer to the truth?