Should community associations foreclose?

Historic City News reports the weekly final judgments recorded in St. Johns County; a growing number of which are judgments of foreclosure.

Across the county, the threat of foreclosure is turning the “American Dream” into the “American Nightmare” for many mortgaged homeowners.

In addition to editing and publishing Historic City News, I am also a state licensed community association manager. Someone, like me, is required by state law to administer the common elements of homeowner and condominium associations and to collect, account for and disburse the maintenance fees and special assessments of those communities — if they are of a certain size.

What exactly are these “assessments”? Are they really like a property tax, and if so, should they be collected by public entities? Are they like a charitable contribution, voluntarily made? Are they a payment for services rendered–managing and maintaining the property?

Community associations do many of the same things that local public entities do –maintain streets and parks and community swimming pools. But, they also do what private homeowners do — paint the buildings, put on new roofs, and pay the water bill. With ownership in one of these managed communities, comes obligation.

Currently, community associations have the right to use foreclosure as the ultimate delinquent assessment collection tool when owners in the community do not pay their apportioned share of the common expenses and reserves. Foreclosure is the enforcement device that allows a creditor, in this case a homeowners association, to force the sale of an owner’s condominium or single family home to collect a delinquent association assessment.

The practical arguments among the various participants in this debate go back and forth something like this: Assessments are a community association’s cash flow lifeline—if owners fail to pay, the association cannot keep its commitments. Foreclosure is a radical remedy—it costs associations more than they can possibly recover, so why do it? Foreclosure for failure to pay delinquent assessments is the only enforcement mechanism that works.

The legal arguments include: There is really no contract between owners and their association that gives the board of directors the right to foreclose because the owners weren’t parties when the association was created. The covenants, conditions and restrictions are recorded against the title of the owner’s interest and provide for lien rights and hence the right to foreclose. State legislatures have not clearly provided for an association’s right to foreclose.

And finally, the moral arguments: A home is a sanctuary—how can we allow it to be taken away just to satisfy a small arrearage in assessments? We should not allow owners who do not pay their assessments to live on the backs of those owners who do. Everyone should pay his or her own way. Foreclosing on someone’s home is immoral and community associations should have no right to do it. It just supports a large number of attorneys, property managers, and collection companies.

I haven’t heard anyone argue that landlords should not be able to evict tenants who fail to pay the rent, so why do we argue differently in the case of a community association that is providing the same maintenance, repair, insurance, utilities, and management services? Maybe it’s because a homeowner possibly has more invested in the property than a mere tenant. But should we discriminate against someone just because they haven’t been able to afford to own their home? Or maybe we are just more sanguine about owned homes than we are about rentals—that emotional issue again.

The debate we hear so much about today, does not center upon whether or not we should enforce these assessment obligations — but rather the means of that enforcement. And because enforcement today often means using some form of judicial or non-judicial foreclosure, the subject remains under the microscope and very hotly debated because people are losing their homes at rates not seen in years.

The need for revenue by the association is too great to give up all meaningful methods of collection, in my experience and opinion. Any enforcement method that works will most likely provide eventual recourse to the home. Of course you might have to first try garnishing wages, selling off someone’s possessions, their car perhaps, but if you strip them of their remaining income and transportation do you honestly believe that is somehow better than forcing them to sell their home?

I recognize that reasonable people have differing opinions, but, nothing about debt collection feels good — given the personal circumstances that cause debtors to default in the first place. Notwithstanding those opinions and feelings, community associations, like any enterprise, need a predictable, adequate income stream to survive, and to get that they must have the means to protect it.

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