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September 1, 2014

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j. patrick coolican:

If you thought HOAs were bad now, just wait

J. Patrick Coolican

J. Patrick Coolican

Who needs caffeine when you’ve got today’s topic: homeowners associations!

Yes, your blood pressure is spiking at the sight of the dreaded acronym, HOA. They told you that you can’t paint your garage door pink. They take a slice of your paycheck every month and you’re not sure what they spend it on.

Now we learn some are dirty. In the news recently: HOA boards corrupted by political hacks, who then steered construction defect lawsuits to juiced-in law firms. The feds are securing new guilty pleas all the time.

But the HOA crisis I want to address here, though a far more worrisome, is a few years away.

It goes like this: Everything in Las Vegas that was new five or 10 years ago — your community pool, the roof on your condo building, the street in front of your home — will soon be middle-aged and require maintenance or replacement. And HOAs aren’t equipped — financially or otherwise — to deal with it.

“Stuff falls apart. It’s inevitable. And I know we’re not prepared for it.”

That’s Evan McKenzie, lawyer and political scientist at the University of Illinois at Chicago and the foremost expert on HOAs. He wrote the book on them, aptly titled, “Privatopia.”

Let’s quickly review the history here because most of you are from someplace else and have the same question I have when it comes to HOAs: Why do we need them?

HOAs, or under our statutes “common interest communities,” are a dominant governing paradigm for two reasons, and both are intertwined with the growth of the Sun Belt — a phenomenon that saw millions of Americans move South and West, many of them to escape the high taxes of the Northeast and Midwest.

First, an HOA allows municipal government to push responsibilities on to these private entities. And, if the city doesn’t have to build or maintain the neighborhood park, that means lower taxes. Of course, we still want the park and we want it maintained, so we still have to pay for it. But the HOA is probably cheaper than the cost of more robust local governments with their pension-gobbling public employees.

Second, the HOA acts as a cheap code enforcer so the neighborhood doesn’t go to seed. In older communities like where many of you come from, neighbors give subtle clues to neighbors. “Hey there, really lettin’ your lawn go aren’t ya, Ernie?”

But here, we’re afraid the neighbor might be a freak fugitive from Omaha, so we don’t want to make eye contact, let alone tell him to mow the lawn. So to preserve neighborhoods and their value, we have to give someone the power to be the local bad rent-a-cop: Get the car off the blocks and off the front lawn or it’s a $50 charge.

So, HOAs.

There are disadvantages, however: “When things were going well, HOAs were already in trouble,” McKenzie says.

“The reason is because the whole institution is premised on a faulty assumption: That owners can do all the things expected of them —to run the association and essentially operate a corporation. It relies on them having more time, money and loyalty than they actually have,” he says.

You can see this in the abysmal voter participation rates for HOA board elections, and in the minor and major scandals that erupt all the time. And that was during the good times.

The real estate crash has created massive new challenges: To begin with, neighborhood blight that follows a spate of foreclosures.

Then there’s money.

“If they’re not paying their mortgages, you know they stopped paying the HOA before that,” McKenzie says.

HOAs can recover some of the money owed them, up to nine months of dues and attorney fees plus collection costs, according to officials in the office of the state’s Ombudsman for Owners in Common-Interest Communities and Condominium Hotels. But many owners owe more than nine months of dues, thereby leaving a deficit for the HOA.

And although HOAs are required to give a summary report of their financial reserves, that’s all that’s required.

“If they’re not meeting those reserves, it’s the association’s responsibility to ensure they meet the reserve. That’s an internal … issue,” says Sharon Jackson, compliance supervisor for the ombudsman. In other words, that’s your problem.

Ombudsman officials say they don’t know how many HOAs don’t have the required reserves, but say most aren’t at 100 percent, which makes sense given the recession and all the people unable to pay their monthly fees.

So in addition to zombie banks, we now have zombie HOAs.

And here’s where it gets ugly. Many of our valley’s developments are like the monorail in “The Simpsons”: thrown up quickly and cheaply and not exactly built to last. The maintenance bills are coming due. And if there’s not enough money in reserve, you’ll get a huge bill — and I mean huge — from your HOA to replace the roof of your condo building or repair your road.

That day is coming.

Apparently there was some confusion between myself and state officials as to what an HOA can collect on unpaid HOA fees. The $1,950 cap is for collection costs only. The HOA can also collect nine months of dues. I've changed the column to reflect that. In any case, the problem remains: HOAs often can't fully recoup what they are owed.

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  1. Las Vegas is one place that seems to have a problem about growing old.

    Folks who live within communities that are subject to HOAs have a certain lifestyle choice, and the conditions serve them.

    It is a fact that you also have chosen to give up certain liberties and freedoms that you would otherwise enjoy outside of a HOA community.

    With the massive boom growth, and housing projects literally built as fast as possible without strict permit code enforcement, many, if not most of these tracts of communities will suffer massive problems as time goes by and they AGE. Shabby workmanship, products not built to code (some lacked proper inspections during the building process), and coupled with mass insolvency, money for upkeep is indeed questionable and problematic.

    Clark County does NOT need to continue building thousands of homes that cannot be SUSTAINED with our water supply and other utilities. A building moratorium should be enacted, where previously built sites are literally recyled, utilizing sustainable materials, conservation devices, and green power cogeneration.

    Common sense should prevail with our County Planning Commissioners. We are in a DESERT! Plan and build accordingly. Strengthen what remains.

    Happy Nevada Day!

  2. One of the reasons I bought into The Strip condo I did was because of its HOA having a healthy "reserve" account. We have a portion of our monthly fees go into an account based upon what systems (i.e., HVAC, roof, pool) will need replacing at average intervals. I strongly advise all prospective buyers to look into the finances of the HOA before purchase. If they won't open the books now, they're not going to be cooperative once you're in.

  3. Renting is becoming the best option. The appreciation isn't worth waiting for and it may take 10 years or more for the real estate purchased to reach the price at which it was purchased. Steve Wynn says he plans to expand into Macau along with Sheldon Adelson. The economy here will hold in place at best.

  4. I never heard of an HOA when I lived back East years ago. My home there was in a nice, established neighborhood and I don't recall an issue, ever, when a neighbor's home was unkempt. When I owned a home in Las Vegas, which fortunately I sold at the very beginning of the decline, the HOA regularly sent me notices about the front yard (I'm surprised it didn't send spies to the back), despite the fact that I had a fine gardening service (which maintains my current home) that didn't miss a thing. But the HOA, "Cut that cactus back," etc. It even sent me a notice when I had a small patch of bare ground in front (the rest was "desert landscaping") that was being prepared for a small pond. Once, a representive even came to my door and harangued me for a few seconds before I called 311 and he scampered away like a scared squirrel.

    Home ownership requires personal responsibility and if a neighbor isn't being so, my belief is that if someone in that area is offended, that person should handle it.

    Oh, yes, I stopped paying HOA dues early on and the organization put a lien on my home, for which I took it court, on my own nickel. We won.

    I know there are other components, common areas, etc., but there must be a better way to handle them than these organizations.

  5. HOA's allow for the possibility of numerous financial abuses regardless of where they are. From Condo commandos in Florida (Seniors who vote for major system upgrades while the majority of owners are gone during the summer), to overpriced snow removal companies in the Northeast (while in VA), weatherizing a Mountaintop Condo Tower in Banner Elk NC where the winter winds where rushing through the halls at 60MPH, etc.... A Single Family Home on a Public Street without a Club House or Pool HOA is your best bet. Hire an ASHI certified inspector, do an Energy Audit and know that 2-4% of the homes price must be set aside every year for current and future maintenance.
    If you are financially unable to do this then Renting is by far your best option. If the home is poorly built - Do not buy it, let the investors take the risk. In any market loosing population, if you must Buy, purchase only in the best school district available.

  6. I love renting. While I've profited on the four homes I've owned (even the one I sold here, albeit minimally), I never bought a house for "investment," always believing unequivocally in Polly Adler's line, "A house is not a home." I do still own a summer place in New England (30 years).

    My landlord's responsible, gets things done (he has a home warranty), pays the gardner, the pool service, etc. As I plan to stay here, my only concern on this level is that he'll sell the house, but that's not a bad trade-off as the lease precludes sale without the buyer agreeing to comply with the lease.

    Would I buy another property in Las Vegas? I don't think so, for any number of reasons, the least of which is "buying at the low" or "the deterioration of the market." I just no longer have the stomach for dealing with the normal upkeep, service firms, etc. Besides that, from what I've read, the financial institutions don't make it particularly easy to buy a property out of foreclosure.

  7. azsk8fan: That's a more than reasonable question. I've not got an equally reasonable or, for that matter logical response. However, I can say this, I lived in a rather upscale area of West LA which was not a development and every home was well maintained. Granted they were expensive homes by Vegas standards, but they were maintained either by the homeowners or outside companies. On the East Coast, I lived in a neighborhood where there was no home less than 50 years old -- all well-maintained, no common areas.

    I didn't "beat the system." The home I owned here was well maintained by a gardener (same one who does the home I rent). I believe I have enough common sense and taste not to modify a home I own in a manner that would not fit the look and feel of the neighborhood. What I will not do, however, is accept the whim and whimsey and for that matter taste of some group that isn't contributing to the maintenance of my home. I would have been alright to pay a share for the "common areas." However, it was another issue that caused me to respond in such a manner.

    The common areas are lovely and do enhance the neighborhood. It's the intrusiveness of some HOAs that disturbing.

    Frankly, I didn't expect an "attack" here and I find the statement "beat the system" pejorative and non-responsive to the intellectual argument. I don't mean to offend and if that is the way you interpret this, my apologies.

  8. HOA's for Single Family residences have a different responsibility from an HOA that covers a Condo or Townhome Association. In a single family area if a home gets a roof leak, it's the individual homeowner that pay to have it repaired. In a Condo development the HOA repairs the roof from the monthly fees charged.

    Many articles written about HOA's fail to understand the difference...mostly because they are simple Journalism graduates...Meaning they often times don't have a clue about the real world, but they own a printing press and a lot of ink.

  9. TheSerfAttack: That's true today. However, the homes that I bought, I owned clear (the first allowed me to do this). Second, I own the homes I bought now. Third, what you state with regard to ownership is as close to absolutely true as it can be today.

  10. There is no HOA where I live, though the houses are generally good and in the Summerlin area. When I moved here a decade ago I heard for the first time about HOAs and decided it was a complication I did not want to deal with. We do have some problems, mostly with houses that are rented out, but it is a price worth accepting as an alternative. The Code Enforcement people from the city do an adequate job of keeping things orderly and they do respond to complaints such as illegally parked or stored cars and other unsightly nuisances. Paying for a committee to tell me how to run my own property and is just adding another layer of government.

  11. Everyone seems to have a WAR story about their HOA. I have found that the section 8s are the problem. They rent, destroy and move on. They have no investment and could care less about the community. True, reserve accounts need to be funded. As everyone knows, taking the HOA's funds and investing those funds in a Money Market, CD's etc. at one time could and would have kept up with inflation, not now, so now those funds need to be funded. When people walk away without paying, banks foreclose, people refuse to pay, it cost all the owners. Usually the HOA tries to keep the area and homes looking neat and clean. Not for any other reason than trying to protect the owners investment. All I can say is (GET INVOLVED) and make sure you have a good Management Company.

  12. That reminds me on what happened to a condo I use to live in, the Millstream Townhomes. They were built in 1986 and needed roof repairs in 2006. HOA fees were at $80 a month, then they wanted to pay for the roofing with a big fate fees of $200 a month. The used cheap labor, which made for leaky roofs & Air Conditioners spraying water throughout the attics. HOA prices stayed high while the actually homeowners wanted to start a class action suit on their own HOA & the cheap illegal alien roofers.