HOA Bankruptcies Coming

Implications: Rising costs and high delinquencies are pushing HOAs into bankruptcy.  Add HOA solvency to your underwriting checklist.

Analysis: For those with community interests in Arizona, beware!  Homeowners’ associations are struggling to pay their bills today.  As association costs have gone up in recent years, the number of people not paying is increasing.  Established associations weather the storm by increasing dues, an unwelcome reality for members.  For less established associations, increasing dues might be the best possible outcome; some will file bankruptcy in coming months, and existing homeowners may not have full use of amenities that drew them to the communities where they now own homes.  If you are buying an interest in a community with a HOA- whether it is a single home, multiple homes, lots, or land, you can now add the HOA to your list of financial underwriting checklists.  

According to Robb Lipsey, President of full service HOA management company Premier Community Management, association finances are a growing concern, particularly for newer HOA communities.  “Delinquencies are increasing and existing members, which include developers and homebuilders in communities not fully sold out, are being forced to pick up the shortfall for those not paying.”  In cases where builders go bankrupt, existing homeowners are faced with tough decisions, according to Robb.  In one meeting, a builder recently informed homeowners in the half-built community that they were being forced into bankruptcy and HOA dues would need to be doubled.  

One association member in a newer Queen Creek area community recently shared that its association had $400,000 in delinquencies, and legal fees associated with collecting on the delinquencies.  While researching the likelihood of homeowners catching up on dues, the Board uncovered some unpleasant information: more than 500 of its members were 90 days or more past due on mortgage payments.  

According to City Property Management Company, when East Valley HOA Santana Ridge Homeowners Association developer Weinstein Communities recently filed for bankruptcy existing HOA members were faced with increasing dues to maintain amenities installed throughout the partially built community.  Their decision: increase dues from $200 per month to $310.  

As an increasing number of HOAs struggle to stay in business this year and next, legislation will likely evolve to protect HOA community members.  HOA funding protections, including and possibly beyond reserve funding requirements, will likely become a hot topic.  Land and lot buyers prepare!