The housing crisis keeps finding more ways to bite homeowners in the butt. The Arizona Republic has a couple of good articles on the problems that homeowners are facing with their homeowner associations.

For those of you unfamiliar with the concept, most new subdivisions in the sunbelt are governed by home owners associations of HOA’s. These associations are responsible for the maintenance of the common  areas of the subdivision. Often that amounts to no more than a border fence and a small amount of landscaping but in some it includes parks, playgrounds, community centers and swimming pools. Fees for each homeowner can range from a couple of hundred dollars a year to as much as $200 or $300 per month. Many cities now mandate that any new subdivision include a HOA and that it construct parks, bike paths and other recreational facilities thus relieving the municipalities of a burden they used to shoulder.

The problem is that many of the HOA’s are now going belly-up. Why? There are actually a couple of reasons.

Typically a builder will retain control of the HOA as he completes the subdivision. The builder is responsible for paying his share of the HOA dues until a certain portion of the homes are completed and sold. Then the builder turns the HOA over to the residents. This is usually accomplished when enough homes have been sold to ensure that the homeowner base is sufficient to cover the budgeted operating expenses of the HOA. That works great so long as the project goes well and the homes get sold. When that doesn’t happen the whole scheme falls apart.

National builders almost always form subsidiary companies to build a subdivision. That gives them an out without imperiling the parent company should things go wrong. If the subdivision is going badly, they just BK the subsidiary and move on. As we all know things went badly, so they folded their tents and took off. Of course, that means no one is paying the builders share of the HOA dues so all of a sudden the carefully planned budget isn’t worth the paper its written on.The existing homeowners find themselves stuck with maintenance expenses that far exceed the revenue stream generated by the base of owners.

Now in some cases everything went well. The homes were sold, the HOA was turned over as agreed and the budget worked. Then the world as we know it collapsed and homeowners in the subdivision started losing their homes to foreclosure and others were so strapped that it was all they could do to maintain their monthly mortgage payment. Once again the carefully crafted budget for the HOA is torpedoed by a lack of revenue.

So now, whether it was because the builder ducked out or the base of homeowners declined, those that are left are looking at hefty and sometimes crippling increases in their HOA dues. In many cases, the subdivision’s common areas aren’t being maintained which often leads to enforcement orders from the municipality in which they are located. Of course, the way out is to sell the homes and generate new revenue from those residents but the overhang of potentially large HOA assessments and often the unkempt appearance of the subdivisions discourages new buyers.

As banks take over these projects and attempt to resell them they are taking some steps to clean up the developments that have gone to seed and in some cases working with the HOA’s to get them back on their feet. Sometimes but not always. In the meantime, any buyer needs to be aware of the potential land mines that HOA’s can present and do a lot of homework before they buy. Get the financials and study them. If you are confused, get some qualified help and if you don’t get satisfactory answers to questions then look somewhere else for a house.

more: here and here