IF YOUR HOME IS IN A HOMEOWNER ASSOCIATION - YOUR EQUITY IS AT RISK
Can you afford to give your money away?
October 06, 2004
By Ann Roth
Copyright Ann Roth
Orange County, California -
CAN YOU AFFORD TO GIVE YOUR MONEY AWAY?
If you live in a homeowner association don't ever forget this: The more equity you have in your home -- the greater your risk of losing it. Your home equity could soon become your home 'debtquity'.
It is no secret that home ownership is supposed to be part of the American dream and that dream is very likely going to be one of the largest purchases a person will probably ever make in their lifetime. The more equity you have in your "home", the more desirable and lucrative it is for the association to use it as collateral -- and you can't stop them. You might ask, collateral for what? The answer you won't want to hear or believe is, everything and anything the board decides is in the best interests of the association.
Through no fault of your own, your very hard earned money that was sunk into your home equity is automatically in the control of a handful of so called "elected" neighbors, who may or may not like you, who may or may not have your best interests in mind, and who may or may not care about what happens to your house. Your home has instantly become not only a liability for you but a "debtquity" at disposal of the association.
If you desire to (1) protect and preserve your home equity, (2) be in control of your financial destiny, and (3) desire to pass down a legacy rather than a liability to your heirs, then don't buy a residential deed-restricted property that has a homeowner association. Run in the opposite direction.
DOESN'T EVERYBODY JUST WANT TO LIVE IN A COMMUNITY LIKE THIS?
Before handing your life savings over to a bunch of so-called "neighbors" who might rig elections, buy proxy rights, fabricate minutes, and stab you in the back, understand what it is that you are "buying."
Do this by demanding disclosure of pertinent documents. Scrutinize at least five years worth of minutes and read between the lines. Investigate if the board members that were on the board when those minutes were written, still live there -- if they don't, don't buy. Get copies of all the Master and Sub association insurance policies and proof each one is paid-up and in effect. Without these items at a minimum -- DON'T BUY. If you experience any problems obtaining these items -- DON'T BUY.
In the 2004 Winter edition of USAA Magazine, it was written that, "Home equity accounts for 30 percent of the typical American household's wealth."
For most of us, 30 percent of our personal wealth is no small amount. Just think, if you had to earn that same 30 percent all over again, how hard would that be to do today? Many American's desire to retire with their equity or pass the legacy down to their heirs -- but for many reasons, that may not be possible if you have a deed-restricted "property" that is subject to a homeowner association.
Preservation of home equity and keeping it secure should be a titleholder's priority. However, even if the titleholder wants to protect his property and equity, if that home is located inside a common interest development that might be impossible to accomplish.
FIGURE OUT WHAT A HOMEOWNER ASSOCIATION REALLY COSTS YOU
In their book, Villa Appalling! Destroying the Myth of Affordable Community Living, (2002) the authors provide an Affordability Richter Scale table where purchasers and owners can calculate actual costs of this type of housing. They posit that, if even ONE of these Ten Major Risks applies to your home, you do not have an "investment" and your home's "equity is at risk":
1. Missing a homeowner association monthly fee (regular assessment) payment.
2. Being unable to pay your mortgage payment.
3. Being unable to pay a homeowner association special assessment payment.
4. Foreclosure that is beyond your control including Mello-Roos taxes.
5. Property value is affected by other owners over whom you have no control.
6. As your property values increase, the pool of available and qualified buyers decreases.
7. Fines, penalties and punitive measures outside your control.
8. Board can place lien on your unit, clouding your title.
9. The amenities no longer function or exist, or restrictions prevent use.
10. Your payments and assessments are not tax deductible.
The book, Villa Appalling! reminds owners not to "forget to factor in the loss in interest or other funds you could have earned by investing this money. Multiply your monthly dues by the number of units then times 12." They say that gives you the size of your supposed (association) business. But what is more startling, are the many hundreds of thousands of dollars your homeowner association business turns over every year. To figure that out, the authors provide the following eye-opening calculations:
Your Calculation: $ (your dues)_______X (# of units)
X 12 months, equals Big Buck$.
Our Calculation: In California an estimated 9 million people live in common interest development$.
EQUITY ERODER$ EATING YOUR EQUITY - PENNY BY PENNY - CENT BY CENT - UNTIL IT'S GONE
1. Assessments without accountability. Accountability means owners are able to independently audit the association's books and records. Assessments are mandated means there is a statute that compels you, by law, to pay, and pay, and pay and keep paying. If you live there until you die, you pay until you die. This means if you are late paying, you have basically broken the law.
These assessments are unpredictable. They occur with or without your approval. These assessments can be special, emergency, regular, monthly, annual, and the list goes on and on and on. There is no statutory cap or ceiling on what an assessment amount can be. If you are in an association in California that just lost a major lawsuit, your assessment - that can never be discharged - will follow you until you pay.
2. Unpredictable fines, penalties, interest and lawyer fees can be imposed upon the homeowner at the whim of the board for, among other things, an inability to pay the ever increasing association assessments by way of dues, and/or special assessments.
3. Mold and Construction Defect Litigation: If the homeowner does not understand the severity of this type of litigation, and that the association can enter into it without your consent, you should not purchase in a homeowner association. Worse yet, is that once the association obtains the money from such litigation -- you may never see a dime of it. The association BOARD decides how, if ever, they will spend it. And, believe this, it won't be on YOUR unit.
4. Litigation: The Villa Appalling! authors make it clear that the association board of directors can sue any owner, and all owners will pay for that litigation. An owner can sue the association and its board, and again, all the owners will pay. Don't forget that a third-party such as a management company vendor can sue the association, as they can sue any owner, and again, all the owners will pay, and pay, and pay, and pay . . . Everyone knows the side effects of litigation, just multiply what you already know about regular litigation a thousand times over, and that's where you start in a homeowner association.
YOU will be responsible for the increased risk of liability and damages should someone get hurt on the common areas (slip and fall accidents don't just happen in grocery stores) and YES management company vendors DO sue associations if they are injured on common grounds, think they've been slandered, or if they've been fired and don't like it.
5. Added Costs: Understand that you will never adequately be able to account for any costs, let alone "added" costs because you are not in control of the association's accounts. Because of these added liabilities inherent in association and community-type housing, homeowners have been advised to purchase additional liability insurance -- if they can get it -- further eating up their equity.
6. The Quicksand of the American Dream of Home ownership is none other than Foreclosure by HOA neighbor both Non-judicial and Judicial. If there is ANY way possible, that association board and their attorneys WILL take your house from you. There are a million ways to accomplish that end.
Any inability to pay association assessments can result in non-judicial foreclosure -- and nobody cares what your excuses were as to why you could not afford to pay, or why you didn't pay. In fact, those neighbors you share coffee and proxies with, will revel in your misfortune. Why? Because it's YOU and not THEM. Your board members will be the last people on earth to care about your excuses.
Watch those management companies -- you'll never know which ones are getting the biggest cut or percentage of the foreclosure proceeds because your board won't let you read their contract. Other vendors get much more money initiating the foreclosure procedure rather than merely trying to collect some lousy late fees.
The REAL money is in the penalties, attorney fees, and interest. The association and all their co-conspirators will jack those fees up until you choke to death in the quicksand. Your home can be gone in some instances in less than 90 days. Is this really what you had in mind when you moved your family into a homeowners association?
7. Fraudulent Transfer Fees and Other Bogus Document Filings: Since no one seems to be watching what the legislature is doing to the American Dream of home ownership, or how your board keeps breaking the laws without being prosecuted, you might as well allow them to extract as much money out of your escrow account that they can.
This is easy, and its been happening right under your nose. What homeowner, who is in the middle of closing either a purchase or sale of property in an association is going to want to be accused of preventing escrow to close by questioning the management company's exorbitant and bogus fees, or the association's trumped up charges of money owed? Your escrow has become a perpetual payroll for them and they WILL hold you hostage to unconscionable fees and charges that NO OTHER PROPERTY OWNER IN AMERICA is forced to pay.
9. Your Home Equity is the Homeowner Association's Collateral: This happens because you don't control your property. Although you've got a deed/title in your hand -- OTHER PEOPLE CONTROL ITS VIABILITY. HOA management company/vendors know that all too well, and they "assist" your board -- after all, they were hired to help the board, right? If that weren't enough, be even more afraid of the HOA attorneys. Some of them might even own foreclosure companies.
In the end, if you desire to pass down a legacy, rather than a liability to your heirs - do not buy into any deed-restricted "property" that is subject to a homeowner association. There are too many factors that are out of your control and in the control of handfuls of so-called "elected" neighbors, who may or may not like you.
NOTES:
Portions copyright(c) (2000-2004)Vanitzian,reprinted with conditional permission
Portions copyright(c)(2002)Vanitzian & Glassman, Villa Appalling! Destroying the Myth of Affordable Community Living,reprinted with conditional permission
Winds of Change are here and now. We don't need a "SCCA" to do nothing for us but raise our dues.
