Wednesday, July 9, 2008

HOAs, condos squeezed by housing downturn

Delinquent fees, foreclosures could increase burden on remaining residents

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In Montgomery Village’s Eastgate community, homeowners association dues delinquent more than 90 days totaled $5,661 in May, a spike 80 percent higher than the 443-home community has seen since the beginning of last year.

In Germantown’s 684-home Cinnamon Woods community, 42 percent of homeowners were late with their $124 monthly HOA fees through the end of 2007. Nearly half of those were more than 90 days past due.

In Silver Spring’s Glen Waye Gardens Condominiums, six of 214 units have been abandoned in the past year, saddling owners with a $15 per month on their $500 condo fee.

Financial records, coupled with anecdotal accounts from community leaders, paint a grim picture for HOAs and condo associations. Several communities are reporting that as many as 10 percent of homeowners are delinquent.

The confluence of foreclosures, bankruptcies and delinquent assessments is bringing routine maintenance and long-term repairs — paid for out of community coffers — into doubt, said Frank Rathbun, a spokesman for the Community Association Institute, a national education and advocacy group. Inevitably, communities will face the specter of emergency fee increases, he said.

‘‘Now more than ever, this is the time to run your association like the business that it is. If someone is delinquent, don’t wait, send that letter off,” Rathbun said. ‘‘It’s time certainly to tighten belts and to seek the advice and wisdom of community management professionals.”

Part of the problem is that the lagging economy and mushrooming energy costs have forced residents to prioritize their spending.

‘‘Their assessment fee may be on the bottom of the list,” said Toni Negro, board president of Center Court Condominiums in Montgomery Village. ‘‘... I’ve heard people say that sometimes they are advised not to pay by people who consolidate debt because it’s the most difficult [debt] to collect.”

For the larger of Montgomery Village’s independent HOAs and condo associations, the problem has been less of a hit. Although Village communities like East Village, Stedwick and Whetstone are seeing double the rate of delinquencies and their first foreclosures in recent memory, the threat is dampened by large reserve funds. The 1,389-home East Village, for example, has averaged $15,773 in unpaid fees over the past three months, but has more than $1 million in reserves.

For smaller HOAs such as the 276-townhouse Maryland Place Homes Corp. in the Village, the problem is one of proportion.

With only $150,000 in reserves, the $8,000 in delinquencies — double the norm — is far more foreboding, said board President Bill Holcomb.

‘‘Maybe six months down the road, if we continue to see the lack of income, our budget is going to be skewed tremendously, and we’re going to have to dip into reserves,” Holcomb said.

Delinquencies create especially acute problems for condo associations, in part because dues are collected monthly, said Negro, the Center Court board president. Running $18,000 to $20,000 delinquencies every month, the 132-unit community has all but lost its cash flow.

‘‘We’re not able to pay our creditors, so we get further behind in paying our own bills. And it could affect our credit rating. It also puts a burden on our other residents,” Negro said. ‘‘In the long term, it affects our ability to maintain our reserves.... That could be dangerous: you won’t have enough money to take care of those things that you put away for a rainy day.”

And ‘‘commonly metered” condo communities — older communities where electricity, water and gas are paid collectively — such as Silver Spring’s Glen Waye Gardens are being hit the hardest, said board President Vicki Vergagni.

Vergagni has lived in the 214-condo community since 1975. She is also vice chairwoman of the county’s Commission on Common Ownership Communities, an arbitrating board for the one-third of county residents who live in an HOA or condo association. She has never seen anything on the scale of the associations are facing now.

‘‘It’s hitting us every which way you can guess, and it’s hitting the people who had nothing to do with this mess in the first place,” Vergagni said, referring to high foreclosure and bankruptcy rates. ‘‘Nobody is looking at the issue, and it is destroying working-class people, by and large, because they are the ones that live in the denser communities. It’s like we’re hitting the people that can least afford it. They’re hitting them again and again and again.”