As homeowners lose their properties to foreclosure or fall behind on their bills, their neighbors in communities governed by associations are paying the price.
Many homeowners association boards are being forced to raise assessments or cut services to cover the shortfalls created by vacant homes and the unpaid dues that accompany them.
“We’ve had about 70 percent of our associations raise assessment rates to cover increases in their operating expenses, added delinquencies and loss of income from foreclosures,” said Tim Larson of Westwind Management Group Inc., a firm that manages 52 communities throughout the metro area.
“We’re also seeing a trend right now of our boards of directors putting off large jobs and basically focusing on cutting costs and providing the basics.”
Before the foreclosure epidemic started, the delinquency rate for HOAs Westwind manages was between 3 percent and 10 percent. Today, it’s about 15 percent. The increases in assessments to make up the difference have ranged from 3 percent to 5 percent.
Steve Woodworth manages seven of the 85 associations overseen by Homestead Management Corp. of Westminster. In the past two years, the number of delinquencies in his associations has tripled, but is still relatively low.
“It’s probably more of an issue in the older properties,” he said. “Most of mine are 10 years or less.”
Cathy Cain of Denver is among the homeowners who have seen their fees increase. Dues for her unit in the RainTree community on East Arizona Avenue near South Monaco Parkway have jumped from $125 a month to $155 a month in the past two years.
She said a high number of foreclosures and the increased cost of snow removal have forced the RainTree HOA to raise assessments.
“There are about six vacant units in the neighborhood,” said Cain, who’s lived at RainTree since 1992. “One stayed vacant for about two years.”
Denver Water tries to avoid shutting off services for delinquent HOAs and hasn’t had to do so in years, said spokeswoman Stacy Chesney.
She said the utility doesn’t track the number of HOAs that are falling behind on payments but isn’t aware of a spike.
In addition to loss of revenue, HOAs are facing increased costs for the services they provide, said Jerry Orten, an attorney who represents about 600 HOAs.
“That puts even more pressure on the other homeowners,” he said.
If HOAs want to collect on past-due accounts, associations can either sue those who are delinquent and have their bank accounts garnished or foreclose on the second lien, Orten said.
“If someone is delinquent, it’s usually on more than one bill,” Orten said. “What choice they make depends on how aggressive a creditor is.”
Nicholas Johnson found himself in court when he failed to pay his assessment at Fronterra Village in Commerce City. Because of increasing foreclosures, the HOA raised dues from $95 twice a year to $125 twice a year, and Johnson had trouble paying. But after late charges, attorney fees and court costs, he ended up owing more than $1,000.
“The dues don’t even cover snow removal or lawn care,” Johnson said. “Only code enforcement.”
If a property is foreclosed on, associations have little recourse to collect back assessments.
“The association is only able to collect six months of back dues from the commencement date of the foreclosures,” said Woodworth of Homestead Management. “If somebody is two years behind and they foreclose on a property, the association has the bad debt and has to write off 1 1/2 years of assessments.”
Foreclosures also are affecting associations’ ability to pay for reserve studies and fund reserve accounts, said Rob Felix, principal of The Felix Reserve Group. A reserve study is a capital infrastructure analysis that takes into account the condition of common elements such as roof, gutters and air conditioning.
That means many HOAs don’t have adequate funding to cover big-ticket items such as roof replacement, he said.
“Boards will often cut funding to reserves as a discretionary funding model,” Felix said. “They’re not interested in spending money to fund reserves.”
It’s not fair for the person who buys a 10-year-old condo only to pay a special assessment two months later for a new roof.
“Special assessment means we didn’t plan, and here’s a surprise,” Felix said. “A reserve fund evenly distributes the deterioration of assets to the owners.”
Margaret Jackson: 303-954-1473 or mjackson@denverpost.com
