Collections Article – Post and Courier

Homeowners associations dip into savings to pay the everyday bills

By Katy Stech (Contact) The Post and Courier Monday, September 8, 2008 (Edited for length) 

A rising rate of home foreclosures, which has nearly doubled over last year in the Charleston area, has made it tough for some homeowner associations to collect monthly dues, leading some to dip into savings to pay operating costs. The sign outside this California home indicates that its previous owners defaulted on their mortgage loan.

The latest evidence of economic hardship can be traced to a bare patch of dirt outside a West Ashley condominium complex.

The community of about 150 individually owned units, which previously were rented as apartments, has had a tough time scraping together enough money to pay for pine straw and flowers outside its modest entrance. In fact, it’s been more than a year since fresh straw has been laid down.

Across the country, homeowners associations, or HOAs, have started to see the trickle-down effect of a sluggish economy. Charleston is no exception.

Some communities are having a harder time wresting monthly payments out of homeowners who are either facing financial hardship or apathetic to their responsibilities to help maintain the pool and other common areas. As a result, some associations have had to dip into their savings to pay for everyday costs. And a few have cut back on services by, for example, electing to mow the grass less frequently.

A rising rate of home foreclosures, which has nearly doubled over last year in the Charleston area, has made it tough for some homeowner associations to collect monthly dues, leading some to dip into savings to pay operating costs. The sign outside this California home indicates that its previous owners defaulted on their mortgage loan.

Other association leaders, whose organizations are financially sound today, are casting a cautious eye toward the future, knowing that they, too, might have to come up with creative ways to encourage homeowners to pay up.

“The HOA bill is the last bill that anybody pays,” said Steve Peck, president of Community Management Group on James Island. “You’re going to pay for cable TV and a night out on the town before you write a check to a homeowners association.”

Rising delinquencies

There aren’t solid numbers available about how many Charleston homeowners are paying their dues on time — or not. So evidence of rising delinquency rates is anecdotal.

One 198-home neighborhood in Hanahan saw its delinquency rate double this year compared with last year’s rate, according to statistics from Inman’s company.

Another townhouse development in West Ashley had 21 late or missing payments last year and another 45 this year.

Peck remembers a few years ago when many neighborhood associations easily collected 100 percent of their assessments. This year, across his company’s 67 neighborhoods, he’s seeing a common delinquency rate of either 5 or 6 percent.

“I’ve been doing this for 17 years, and I have never seen this percentage of delinquency,” he said.

Homeowner payments are meant to cover neighborhoodwide expenses such as insurance, landscaping in common areas and the electricity that powers the street lights. Some communities have pools to clean, docks to maintain or elevators to service, while others have only a small area of common space that requires an occasional mowing.

Paying for those services might be less rewarding than other expenses, but Sandy Hightower, a resident and architecture board member at Eagle’s Landing in Hanahan, says that maintaining a community’s appearance helps properties retain their value in a real estate market where home prices are sliding.

“It’s one more thing that keeps part of their value there,” she said.

For communities that have pocketed fewer payments than in past years, Inman has tried to find creative ways to cut expenses. For example, she’s double-checking to make sure the association isn’t paying for unnecessary features in its insurance policy.

At one small Summerville community that Capital Group manages, residents have begun planting the flowers themselves. And Inman recommends that homeowners associations plant perennials flowers that bloom each year instead of ones that die off after each summer season.

“Then you can basically put in one tray of plants, and they’re not $500 worth of plants that are gone after a few months,” she said.

At Bayview Farms on James Island, the association’s financial stability stems, in part, from its community pool.

The modest neighborhood of about 278 homes recently finished paying off the loan that paid for the pool, said Michael Hepner, HOA president. The extra money that the association still collects will help pay for dues that were lost to a handful of foreclosed homes.

Gas factor

Aggravating the overall problem is the rising cost of basic services.

Elevated fuel prices have pushed up the cost of landscaping and other services, such as property management itself, that require gas-powered tools and regular on-site visits.

Just last week, Wallace Jack of the Grand Oaks Property Owners Association in West Ashley got a letter from his association’s management company saying that its service expenses are going up 2 percent. The increase was blamed on gas prices.

“It’s a small amount, and you expect some growth each year,” Jack said. “We usually try and budget a little extra.”

Luckily, the price of repairs has fallen slightly since home-building activity has slowed, Peck said. With more contractors free to do the work, bid prices steadily have lowered.

After realizing that some of their neighbors have failed to pay association dues, some residents have gotten creative, Peck observed. They’ve approached him with suggestions that range from posting delinquent payers’ names on the association Web site to putting the delinquency list up “in the window of the local Bi-Lo.”

Unfortunately, an association that releases that information risks facing a privacy lawsuit, Peck said.

In some cases, filing a lien works, Peck said. But these days, some homeowners, especially those who bought their properties at the peak of the real estate market, are having trouble paying their mortgages, too.

Recovering money when a home is in foreclosure is tougher since banks are first in line to collect any profit from a courthouse sale.

“The ones that can’t pay their mortgages … generally speaking, it’s extremely rare that we’ll recover money for the HOA,” he said.