Foreclosure surprises lurking

Thousands of Americans who have generally kept up with their mortgages are still in danger of losing their homes because they made a fateful trade-off in this shaky economy — they let their homeowner association dues slide.

Many homeowners are learning to their surprise that condo and neighborhood associations that oversee security patrols, mow lawns, plant flowers and clean the community swimming pool may have the right to foreclose when dues aren’t paid. That right is often written into the purchase agreement signed by the homeowner.

In the Wildewood Springs’ Condominium Association off Cortez Road in Manatee County, General Manager Dennis Bucher said owners of 15 units out of 558 units are behind on quarterly maintenance fees.

In January, the association created an operations recovery fund to pool a portion of maintenance fees collected from paying homeowners to cover fees not paid.

“Everybody is paying for the few people who are, for one reason or another, not paying maintenance fees,” Bucher said.

Quarterly maintenance fees at Wildewood Springs range from $1,172 to $1,296 and are based on square footage. Bucher said the operations recovery fund has collected about $90,000 that is being used to help keep maintenance operations going at the condo development.

“If they stop paying their fees altogether, chances are you’ll see a bank foreclosure lawsuit coming,” said David Muller, an attorney who represents community associations for the Sarasota firm Becker & Poliakoff.

Mortgage foreclosures in community associations is creating a financial burden for residents, Muller said.

Florida statutes state when a bank forecloses on a house or condo, the bank doesn’t owe all the unpaid assessments to the association.

“The real reality of it is the hardworking folks out there paying their mortgage and assessments are really footing the bill,” Muller said. “It’s a huge problem, especially with the elderly community where they’re on a fixed income. If you assess them more, you take that population and you possibly put them on the brink of foreclosure. It has this really horrible snowball effect on community associations.”

Many homeowner associations have turned the job of collecting member dues over to outside management companies. And to them, it’s strictly business, not personal.

Homeowner association boards and their management companies defend the practice, saying maintaining the neighborhood preserves everyone’s property values.

“We have compassion for those folks. At the same time, we feel for the rest of the homeowners who are paying their dues,” said Andrew Schlegel, executive vice president for Merit Property Management, which manages more than 140,000 California homes in community associations.

In California, associations can foreclose only after 12 months of missed fees or $1,800 in back dues.

“No one wants to do this,” Schlegel said. “It’s only coming up when people are completely obstinate about it.”

In fact, most people end up saving their homes. Homeowner association boards — particularly those that have lost many of their dues-paying members to the housing collapse and the slumping economy — often work with down-on-their-luck neighbors to come up with some sort of compromise.

Attorney Bob Tankel, who represents hundreds of homeowner and condo associations, said he has increased his staff from three to 16 in the past 18 months to handle a mounting caseload of 3,500 open collections. About one-fifth of those cases have reached foreclosure, he said.

More than 59 million people live in more than 300,000 association-governed communities nationwide, according to the Community Associations Institute, the nation’s largest group for homeowners and condo boards.

In many of these foreclosure cases, the homeowner’s name is on the mortgage, and the mortgage is held by a bank or other lender. But the purchase agreement says the homeowner association can haul the homeowner into court and begin foreclosure proceedings for nonpayment of dues.

If the house is foreclosed on, it is sold off, and the homeowner association takes what it is owed from the proceeds. Proceeds also go to the bank to pay off the mortgage.

— Herald Staff writer Grace Gagliano contributed to this report.