HOAs suffer during recession

By Buck Wargo

Fri, Mar 12, 2010 (3 a.m.)

Foreclosures are taking a toll on some Las Vegas homeowner associations, some of which are closing pools and deferring maintenance as they deal with a drop in revenue.

The financial woes faced by the associations come as they are locked in legal and legislative battles with investors in foreclosed homes who complain they are overcharged for fines and fees by the associations and their collection agencies.

Associations are struggling with their budgets and some have closed pools and clubhouses and cut back on maintenance, including landscaping, said Nicholas Haley, the education and information officer of the state ombudsmen for the owners of common-interest communities and condo hotels office.

Haley’s office takes complaints from homeowners and handles mediation.

“People have complained about the maintenance and what’s been closed down and questioned what are they paying for,” Haley said. “Associations have to balance their budgets, given their communities have faced a lot of foreclosures. Sometimes it is a temporary measure until people start paying their assessments. But you have many people who are retired or out of work and they can’t make up the difference, so the community has to scale back.”

Kevin Wallace, president of RMI Management, which manages 225 condominium and single-family home associations, said only a few that his firm manages won’t be opening pools this spring. The ones that keep their pools open may put off buying patio furniture, acid washing the pool or even buying a pump.

The most common effect is that many are deferring maintenance such as putting off sealing streets or painting clubhouses, Wallace said.

Pool maintenance can run $400 to $900 a month and operating a spa can cost another $200 a month, Wallace said. That doesn’t include the cost of heating the pool or any repairs that need to be made.

Wallace blames the economy. Many homeowners have lost their jobs and are delinquent in paying monthly association dues. It takes time to recover the revenue lost during a foreclosure, he said.

“They have no place other than homeowners to go to as a source of revenue,” Wallace said. “They don’t have any cash reserves.”

Association are limited to fee increases of 5 percent to 20 percent in many cases. If the fee was $30 a month, 20 percent would net only a $6 increase, Wallace said.

Not all homeowner associations say they been affected by the revenue deficit in such a big way that it has forced them to close pools or make other drastic cuts.

Katherine Matheson, CEO of Terra West Property Management, which oversees 170 communities, said associations are going to bid on all contracts whether it’s landscaping or insurance to get the best value and reduce expenses.

“Like a household budget, when you see revenue is down you put off on the little extras that aren’t necessary to run the community,” Matheson said. “It may be patio furniture for the pool or instead of painting the clubhouse every three years, they are waiting until the fourth year.”

It might be different for many associations if the Nevada Legislature hadn’t passed a bill during the last session that allowed HOAs to collect past-due amounts up to nine months instead of six, Matheson said.

“Our Legislature took a hard look at what HOAs are facing and made a wise choice,” she said. “If we didn’t have that in place, we would have a different situation. We would be closing down pools and not be able to mow our common areas on a regular basis. But we are weathering the storm. We are hanging in there as long as we don’t get hit with more foreclosures.”

One bright spot is that banks are moving quicker on processing foreclosures, which gets someone in the home to start paying association fees, she said. That helps when some communities have 20 percent of their homeowners in arrears, she said.

The associations’ financial woes haven’t deterred investor groups from continuing their class action lawsuit claiming they have been overcharged by hundreds of associations and collection agencies for fines, interest and collection costs that accumulated while homes sat vacant during foreclosure proceedings.

The associations and collection companies and their lawyers say they have filed motions in District Court in Clark County to have the case dismissed and the dispute moved to the Nevada Real Estate Division for arbitration.

A dismissal motion is expected to be heard April 6, said Robert Massi, an attorney representing the defense. He declined to talk about the case.

Attorney James Adams, who is representing investors, said District Court and not the Nevada Real Estate Division is the proper venue for the case. The state agency would be the proper venue if the issue were violations of homeowner covenants, he said.

“We are talking about collection agencies and alleged violations in the law in which they are collecting more than investors are legally obligated to pay,” Adams said. “It is just a stalling tactic that is going on.”

Collection agency representatives and homeowner associations said they are doing nothing improper and the fees being charged are necessary to recover costs.

Outside the courtroom, a heated battle is expected March 24 when investors rally against proposed fee limits to be considered by the state Common-Interest Communities Commission. The investors claim the proposed limits don’t do enough to lower the costs they are paying.

Adams said homeowner associations’ financial woes shouldn’t be used as a justification for collection agencies to overcharge investors.

“The investors are more than willing to pay what the law requires them to pay,” Adams said. “A lot of money is being pocketed by collection agencies that the homeowners association never see.”

David Stone, president of collection company Nevada Association Services, however, blames investors in part for creating financial strain for the homeowner associations. Many aren’t paying the monthly assessments once they take possession of homes and are instead waiting for the properties to be sold again before the liens are satisfied, he said.

It would take too long for the associations to initiate foreclosure proceedings and by that time many of the investors have flipped the properties to new owners, Stone said. Some of these investors have made $30,000 to $60,000 on their investments, he said.

“Their goal is to hold onto these properties and pay as little as possible,” Stone said. “They are hurting the HOAs’ budgets and their neighbors are picking up the slack for their speculation because they don’t want to pay association dues. They are entitled to make money, but they are trying to avoid their legal responsibility.”

Stone said some of the margins investors are making on foreclosures are down, and they are trying to make up the deficit by attacking collections.

“They think if they upset the industry, they won’t be as aggressive in collecting money legally due,” Stone said.