The Link Between Homeowners Associations and Property Values

The Everett Herald included a well-written article about homeowners associations on Sunday. Columnist Steve Tytler provided a concise overview of the nature and purpose of such associations while tackling the question of whether a dormant association should be revived. He pointed out that covenants running with land are primarily intended to maintain attractive neighborhoods and enhance home values. He went on to note that homeowners associations, which typically have the power to collect dues from owners, fine misbehaving owners, and place liens on owners' homes, are in most cases the only realistic way to maintain common areas and address covenant violations.

Mr. Tytler concluded his article by contending that homeowners associations may not be necessary in some circumstances. In my experience, those situations are exceedingly rare. Most groups of owners seem to need the structure of an association to consistently achieve common goals. Without that structure, common areas tend to be neglected, covenants tend to be ignored, and property values tend to decline.

How to Collect Unpaid Assessments or Dues from Banks After Foreclosures

Bank foreclosures are unfortunately expected to peak in 2011. RealtyTrac Inc. estimates that more than 1 million homes will be repossessed this year. The Mortgage Bankers Association just reported that 4.6% of homes were in the foreclosure process last quarter, which is an all-time high for that survey. Condominium and homeowners association boards need to be prepared to deal with bank foreclosures in their communities.

It is a good practice for associations to take pro-active steps to inform banks of their interest in the properties at issue. If owners fail to pay assessments or dues, liens should be recorded on their units or lots. This makes it more likely that foreclosing banks will contact the association. If notices of trustee's sales are received, letters should be mailed to the named trustees regarding the applicable assessment obligations.

If a bank has completed a foreclosure against a property within your association, the board should promptly contact the bank to request payment of any amount due to the association at that time and the regular assessments after the foreclosure date. However, the bank may well ignore such a request. Many community associations have discovered in recent months that many banks' preferred practice is to foreclose and then refuse to pay any pre-foreclosure delinquency or post-foreclosure assessments until the property is re-sold. If your association encounters such a situation, it is entitled to treat the bank the same as any other owner and initiate a collection action against it.

Banks often respond quickly to demand letters from attorneys after foreclosures. One important reason for this is that banks (sensibly) do not want to pay their attorneys and associations' attorneys to argue about money that they are clearly obligated to pay. Associations' legal right to obtain awards of attorney fees related to debt collection against banks provides a powerful incentive for banks to pay associations sooner rather than later.

If banks persist in refusing to pay delinquent assessments or dues after receiving attorney demand letters, associations can pursue their own foreclosure lawsuits and even establish receiverships over properties to collect rent. Those types of aggressive actions are sufficient to convince most banks to pay associations what they are owed.

Interview Spotlights New System to Certify FHA-Approved Condominiums

I am pleased to note that I was recently quoted in an Inman News article written by Steve Bergsman entitled New FHA Condo Financing Rules Squeeze Sellers. This article offers an engaging examination of new re-certification procedures that condominium associations must follow to preserve access to Federal Housing Administration loans. It also highlights the importance of FHA loans in the current real estate market. You can check your condominium's FHA status by searching the U.S. Department of Housing and Urban Development's condominium database.

When Should Condo and HOA Boards Seek Legal Advice?

A Spokane homeowners association was recently fined $13,500 by the state for illegally burning a boat dock last June. The burning violated Washington state law because it polluted the air with toxic chemicals. It is presently unclear whether the association will appeal the fine.

Boards of condominium and homeowners associations should consult with their association's attorney before making major decisions like removing structures from their properties. An experienced community association lawyer may have identified the law prohibiting the dock burning, recommended a different method of proceeding, and saved the association a substantial amount of money. Boards considering other important matters like contracts with third parties, proposed amendments to the governing documents, and enforcement actions against owners should also give their association's attorney the opportunity to steer them clear of trouble and advise them regarding the best course of action.

Happy New Year to Washington Condos and HOAs!

2010 has admittedly been a difficult year for many Washington condominium and homeowners associations from a financial point of view. Associations have faced unprecedented struggles in collecting unpaid dues or assessments, funding new reserve accounts, and maintaining existing levels of services. It is impossible to know whether 2011 will be a better year for associations' finances, but there are encouraging signs that this will be the case. My office stands ready to assist your association if it is dealing with delinquency issues or needs guidance with regard to any other legal question. We look forward to helping our current and future clients solve their problems and improve their communities in the year to come.