Boak, of Lexington, Kentucky, says the letters were requests for
$48 in annual fees for upkeep of the tidy neighborhood of one-story
brick homes. Because she didn't use the clubhouse or pool, or
participate in social activities sponsored by the association, she
didn't think she needed to pay. Last September, while she was away,
a neighbor called to tell her about a handwritten sign tacked to her
front door. It said her house had been sold.
Masterson Station Neighborhood Association had foreclosed on her
$120,000 home because she had $288 in unpaid dues, according to the
association's lawyer, Nathan Billings. Boak was sent nearly 30
notices before her property was foreclosed on, he said; the dues
were mandatory association fees.
Boak says she does not remember seeing a foreclosure notice, and no
one served her papers in person. She likens the experience to her
father's in East Germany, where the communist state took away
property rights. "Now I'm 75, and the same thing is happening to me,
in America," she says. With her once-good credit damaged, she is
unable to buy another house, and now rents her old one from the new
owner for $900 a month.
The Community Associations Institute, an advocacy group for
homeowner associations, says foreclosures are a last resort, but
also a matter of fairness: Neighbors who pay shouldn't be penalized
by neighbors who don't. "It's a community, but it has to be run like
a business," says spokesman Frank Rathbun.
FEWER POTHOLES, FEWER RIGHTS
Homeowner associations first took off in the 1970s as local
governments looked for a way to offload costly services, such as
snow removal and road repair. Municipalities have encouraged their
growth since through tax incentives and zoning laws.
Today some 63 million Americans live in homeowner associations, up
from 2.1 million in 1970. Four out of five buyers of new homes,
including condominiums, end up in such communities.
Supporters point out that they provide services and amenities that
preserve the community's character and property values. Some 70
percent of residents say they have a positive experience living in
them, according to the Community Associations Institute.
"I live in a community association that provides a wonderful home
for me and my family, a wonderful neighborhood and community pool,
and that's the way many Americans feel," says Robert Nordlund, a
resident of Calabasas, California, and founder of Association
Reserves, which helps associations with budget and operational
But people who buy houses in an association often don't bother to
read the agreements that spell out what covenants owners are obliged
to observe. They may unknowingly forfeit the right to fly a flag in
the front yard, let a shrub grow any old size, or allow their kids
to shoot hoops in the driveway. Homeowner associations typically
have the right to place liens against wayward residents. Either
through a court or state-regulated process, they can then foreclose
on houses worth hundreds of thousands of dollars even for a few
hundred dollars of unpaid debt, much like a municipality can for
unpaid property taxes or a bank for a few missed mortgage payments.
FAILURE OF FUNDING
Foreclosures on delinquent properties by homeowner associations were
almost unheard of before the financial crisis of 2008. Now lawyers
and real estate researchers say they are becoming more common as
association funding bases shrink because of previously foreclosed
homes' standing empty.
About 70 percent of association-governed communities are
underfunded, up 12.5 percent from 10 years ago, according to
Association Reserves. The average association has financial reserve
accounts — the amount required to maintain infrastructure and common
areas — that are only funded at 52 percent, down from 60 percent a
decade ago, its research shows.
Tyler Berding, an attorney whose firm is consulting with a San
Francisco condo homeowner association, suggests the problem is one
of governance. "It's very much akin to the public pension crisis,"
he said. "Homeowners' associations are simply not putting enough
money away to make the repairs and replacements they will have to
make over time." The condo in question is having to levy a $70,000
special assessment against each resident to restore the building.
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DOG DNA TESTING
Another reason for underfunding is the inexperience of
administrators, often volunteers from the community itself who
possess some of the same powers as banks and governments but operate
with little of the oversight. Even though these board members
oversee what are often multimillion-dollar operations, they require
no licensing or training to do their jobs.
Without that discipline, many are now responding to the homeowner
association funding crisis by aggressively going after residents for
unpaid bills and penalizing them for infractions that would have
been overlooked in the past.
Brian Hanrahan of Columbia, Maryland, had a truck that was running
fine. But his condominium association board, believing otherwise,
towed it away, using a rule that allowed the removal of inoperable
vehicles. The association slapped him with a $200 bill for the
towing, which Hanrahan decided to fight in court.
The ensuing litigation cost the association about $175,000. In court
documents it said about $70,000 of that was Hanrahan's
responsibility because of what it spent "enforcing the governing
Hanrahan won the case and subsequent appeals in a Maryland court.
According to his lawyer, Larry Holzman, the case was settled for an
undisclosed sum. Holzman has since been hired by the association and
declined to comment on its behalf.
Another association, the Villa Medici Condominiums in Jacksonville,
Florida, decided to cancel its dog-waste removal service to save
money and force errant residents to comply with community rules. In
November the board instituted mandatory, $35 DNA testing for all
dogs by a company called PooPrints, as a way to identify members who
do not pick up after their pets. Delinquent owners face a fine of
$100 a day, which can eventually rise to $1,000 for repeat
"People are furious," said Gunilla Craven, a resident and former
The association did not respond to requests for comment.
Residents can fight something like a foreclosure notice by hiring
lawyers, but not everyone wants to take on expensive litigation the
way Hanrahan did. Boak, who lost about $30,000 on the value of her
house because of the foreclosure, said she didn't want to lose any
more on a lawyer.
Over the past decade, a citizen movement has grown to curb the power
of homeowner associations, which remain largely unregulated. Nevada
is just one state that has appointed an ombudsman to field
complaints from homeowners; California and others have passed
statutes limiting the assessment increases boards can make without
Boak's local Urban County Council member, Shevawn Akers, is pressing
Kentucky state government to draft legislation that would prohibit a
homeowner association from foreclosing — or at least from doing so
before it proved that the homeowner had received written notice.
State politicians have yet to take up her proposal.
"This is just beyond overboard," Akers said.
Boak isn't the only one who paid a price for ignoring her mail. For
four years, Colorado's Woodmen Hills Filing Number 11 Design Review
Council sent Christopher Wright notices for late payments that
eventually reached $900, said the homeowner association's attorney,
Jerry Orten. But Wright, who told southern Colorado NBC affiliate
KOAA that he thought the notices were fines for keeping his kids'
bikes outside, never responded.
Wright, who could not be reached for comment, was served in March
with paperwork to foreclose. His $350,000 house recently sold at
auction for $10,900.
(Reporting by Michelle Conlin; editing by Paritosh Bansal, Martin
Howell and Prudence Crowther)
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