Thousands of Americans who have generally kept up with their mortgages are still in danger of losing their homes because they made a fateful trade-off in this shaky economy — they let their homeowner association dues slide.
Many are learning to their surprise that condo and neighborhood associations that oversee security patrols, mow lawns, plant flowers and clean the community swimming pool may have the right to foreclose when dues aren't paid. That right is often written into the purchase agreement signed by the homeowner.
Among those who have been threatened with foreclosure is Lacey Pilat, who lost her job catering lavish corporate parties and nearly lost her two-story house in this Dallas suburb.
"Basically, our landscaper was foreclosing on the house," said Steve Pilat, her husband. "That's the way we looked at it."
These foreclosure actions do not necessarily pit neighbor against neighbor. Many homeowner associations have turned the job of collecting member dues over to outside management companies. And to them, it's strictly business, not personal.
Homeowner association boards and their management companies defend the practice, saying maintaining the neighborhood preserves everyone's property values.
"We have compassion for those folks. At the same time, we feel for the rest of the homeowners who are paying their dues," said Andrew Schlegel, executive vice president for Merit Property Management, which manages more than 140,000 California homes in community associations.
In California, associations can foreclose only after 12 months of missed fees or $1,800 in back dues.
"No one wants to do this," Schlegel said. "It's only coming up when people are completely obstinate about it."
In fact, most people end up saving their homes. Homeowner association boards — particularly those that have lost many of their dues-paying members to the housing collapse and the slumping economy — often work with down-on-their-luck neighbors to come up with some sort of compromise. That's what happened with the Pilats.
Gauging the number of foreclosures nationwide by homeowner association is difficult. But in Texas, foreclosure attempts initiated by homeowner associations in 19 counties are up 30 percent from two years ago, according to Dallas-based Foreclosure Listing Services.
In the San Antonio area alone, foreclosure actions by homeowner associations jumped to 170 in April from 21 in April 2008, according to RexReport.com.
In Florida, attorney Bob Tankel, who represents hundreds of homeowner and condo associations, said he has increased his staff from three to 16 in the past 18 months to handle a mounting caseload of 3,500 open collections. About one-fifth of those cases have reached foreclosure, he said.
In California, Schlegel said more than 6 percent of the homes that his company manages are in some stage of delinquency with regard to membership dues, up from around 1 percent in previous years.
More than 59 million people live in more than 300,000 association-governed communities nationwide, according to the Community Associations Institute, the nation's largest group for homeowners and condo boards.
In many of these foreclosure cases, the homeowner's name is on the mortgage, and the mortgage is held by a bank or other lender. But the purchase agreement says the homeowner association can haul the homeowner into court and begin foreclosure proceedings for nonpayment of dues.
If the house is foreclosed on, it is sold off, and the homeowner association takes what it is owed from the proceeds. Proceeds also go to the bank to pay off the mortgage.
About four months after Pilat lost her job, the management company for the Beacon Hill homeowner association sent her a foreclosure notice in April after several attempts to collect her $450 annual dues, which paid for the mowing of front lawns. The amount she owed snowballed to $1,800 after penalties and fees.
The management company eventually agreed to let the couple pay the debt over time. The Pilats cut a check for $600 in April that drained their checking account but saved the house. They are slowly paying off the $1,200 debt.
Pilat had fallen a little behind on the mortgage, too, but the bank was working with her to keep her house.
The Pilats said their neighbors on the homeowner association board never actually got involved in the dispute over dues; it was handled entirely by the management company. Neither the company nor the homeowner association returned calls for comment.
The foreclosure actions have renewed long-standing complaints that homeowner associations are often made up of power-drunk residents who enjoy lording it over their neighbors and zealously enforce the rules regarding such things as the height of the grass, the color of the house, the flying of flags and the way the porch is furnished.
"You have a number of them being run like little totalitarian regimes," said Texas state Rep. Burt Solomons, who has unsuccessfully tried passing association reforms for years in the Legislature. "Their argument is that if you don't like it, move."
Near Sacramento, Calif., unemployed state employee Pam Spanier was served with a foreclosure notice after falling more than seven months behind on her $115 monthly dues, which pay for Internet access and a golf-cart security patrol. She owes a total of $2,100, including attorney fees and fines. She is still in her home.
"I'm going to continue to look for a job and hope for a miracle," she said. "If it forecloses, it forecloses."