Affordable Housing Institute : US

By: David A. Smith

 

Tension always follows when people live together, whether as roommates, lovers, extended families, in a co-op, a condo, or a homeowners association – and as urbanization increases American cities’ density, these more complex physical forms are increasingly the norm, bringing with them complex financial forms of shared obligations clashing with individual imperatives and individual rights. 

 

The battleground: a courtyard of Inlet House, Fort Pierce, Florida

 

Neighbor vs. neighbor as homeowner fights get ugly

 

This Yahoo Finance story on homeowners’ association delinquencies initially appeared to have one theme – the entity having to fund itself even if some members are delinquent – but then I got mesmerized by the comments and found there are actually two dueling perspectives:

 

“I’m right.”

“No you’re not.”

 

1. Concentration. The entity has to defend its economic viability against delinquent members.

2. Abuse. Those who control the entity can abuse their power and botch their duties.

 

FORT PIERCE – Gail Gross stands in the corner of fellow resident Michael Silvestri’s gutted condo at Inlet House Condominiums where the foundation and walls were cut into for plumbing repairs. The condo association charged each resident about $6,000 in assessments to replace pipes throughout the condo complex’s three buildings. Some residents have been unable or unwilling to pay the assessment, leading the association to file liens and foreclosure measures on several unit owners.

 

Both trends are critical, because like their urban counterparts the condo and the co-op, suburban homeowners’ associations are a rapidly rising tenure model:

 

Today, one in five U.S. homeowners is subject to the will of the homeowners’ association –

 

Let’s dial back the rhetoric, shall we?  They’re hardly vassals. 

 

Here are my association fees, please don’t evict me

 

– whose boards oversee 24.4 million homes.

 

I had no idea it was so many – and there’s little doubt the percentage will continue rising:

 

More than 80% of newly constructed homes in the U.S are in association communities.

 

Homeowners’ associations are not some developers’ newfangled creation; rather, they are the market’s natural and inescapable response to the problems of infrastructure and insolvent municipalities.  A homeowners’ association owns its own inner streets, its own site plumbing and electrical grid.

 

It may look like a street but it’s a private street

 

It owns these things because the municipality refused to pay for them when the developer wanted to develop the site.  In fact, many municipalities not only make the developer provide its own site infrastructure by building its own private (non-city) streets (which the homeowners association must then plow when it snows), the municipality will also often assess a ‘hookup fee’ for each home on the new site.

 

In our association, there’s a fee for getting a hookup

 

The Inlet House condo complex in Fort Pierce, Fla., was once the kind of place the 55-and-older set aspired to.

 

At the outset, let’s note that Inlet House is a condominium, not a homeowners association.  The common areas – in this case walks, paths, parking lots and so on – are more clearly owned by the condo.

 

It was affordable. The pool and clubhouse were tidy, the lawns freshly snipped.

 

Somebody, of course, was doing that work, which means that somebody else – the condo association – was paying for it.

 

Residents, push-carts in tow, walked to the beach, the bank, the beauty parlor, the cinema and the supermarket.

 

In post-crash America, this was a dreamy little spot.  Especially on a fixed income.

 

Yet, but though the fees be great or be small, one must pay them, and if one has cut one’s expenditures too close to one’s income, one’s judgment becomes clouded.  One does not vote the increases in replacement reserves and capital reserves that one needs, especially with a property built forty years ago, as I discovered after Googling for this TC Palm story from January, 2011:

 

Not just the plumbing contractor, but also a unit owner

 

Nearly $6,000 in assessments per unit for plumbing repairs some call unnecessary have some residents at Inlet House Condominiums — where many homeowners are elderly and on fixed incomes — unable or unwilling to pay their bills.

 

Foreclosure measures have begun [January, 2011 – Ed.] on nine of 60 units at the 55-and-up condo community at 2302 Sunrise Boulevard in Fort Pierce since July. The condo association put liens on another three units.

 

In 2009, the condo association paid about $65,000 from reserves to fix plumbing in Building 3, said Reed Sudderth of CRS Plumbing, who was contracted to do the work on the buildings, which were built in 1971. But plumbing problems cropped up in Building 1 in January 2010 and the city of Fort Pierce asked the association to fix Building 1 and provide a report for the other two buildings.

 

Gail Gross stands in the corner of fellow resident Michael Silvestri’s gutted condo at Inlet House Condominiums where the foundation and walls were cut into for plumbing repairs. The condo association charged each resident about $6,000 in assessments to replace pipes throughout the condo complex’s three buildings. Some residents have been unable or unwilling to pay the assessment, leading the association to file liens and foreclosure measures on several unit owners.

 

Readers may be forgiven for not knowing that (a) Florida’s building codes, especially forty years ago, were among the nation’s most casual, (b) during that decade, southern properties tended to use a low-cost ‘two-pipe system’ for their water and sewer, (c) these two-pipe systems tend to corrode, and (d) when they fail, the repair costs can be enormous, because there is no way to fix them without ripping up unit floorboards – as above.

 

When one pipe runs under the buildings, fixing a two-pipe system is quite a three-pipe problem

 

Reed Sudderth, owner of CRS Plumbing, said the problems were evident.

 

“The pipe was so corroded that I couldn’t get my camera all the way through that line,” Sudderth said.

 

The city listed Building 1 as “unsafe” and told the association to make a plan to do the work.

 

Nice on the outside, unsafe underneath?  A side view of Inlet House

 

Thus our little condo association is facing exactly the same infrastructure-capital-maintenance costs of many a municipality – and it reacted over the decades just like many and many a municipality, deferring the costs until finally the systems failed.

 

That was Inlet House before the rats started chewing through the toilet seats in vacant units and sewage started seeping from the ceiling.  The homeowners’ association levied $6,000 assessments on everyone — and then foreclosed on seniors who couldn’t pay the association bill, even if they didn’t owe the bank a dime.

 

Normally, it’s the bankers who go after delinquent homeowners. But in communities governed by the mighty homeowners’ association, as the sour economy leaves more people unable to pay their fees, it’s neighbor versus neighbor.

 

More purple prose: mighty?

 

Here I come, to charge a fee!

 

“What the board is doing is trying to foreclose on people to force people out the door,” says Mike Silvestri, 75, who stopped paying his dues at Inlet House in protest over what he considers unnecessary and unaffordable assessments.

 

Doubtless Mr. Silvestri feels aggrieved – that’s his floor torn up in the picture above – but no one would counsel him to stop paying his legally obligated fees.  That moves him from being potentially in the moral right to being in the contractually wrong.

 

[As we'll see throughout this multi-part post, Mr. Silvestri is the source of most anti-management quotes – at least those on the record.  How many others support his view is unknown. – Ed.]

 

He and others say there were cheaper ways to deal with the rat infestation and leaky sewage that led the board to order up a costly plumbing overhaul.

 

Such as what?  And would it do anything more than defer the day when the plumbing fails.  These pipes have been buried for forty years, in Florida’s hot, moist climate.

 

Run hot water through iron under pressure for forty years, and the result is thick rust

 

“They are bamboozling old people. I’m old, but I’m not senile,” he says.

 

Ah, the mysterious ‘they’ – the all-powerful homeowners’ association board?

 

In the past, housing associations have gained infamy for dictating everything from the weight of your dog (one mandated a diet for a hound) to whether you can kiss in your driveway (not if you don’t want a fine).

 

All of these powers are taken not by usurpation but through contractual agreements formed before residents bought their homes and moved in.

 

Homeowners’ associations have served as the behavior police, banning lemonade stands, solar panels and hanging out in the garage. One ordered a war hero to take down his flag because of a “nonconforming” pole. Another demanded that residents with brown spots on their lawns dye their grass green.

 

These rights, if they exist, are stated clearly in the governance documents.  If you don’t like them, don’t move in – or win an election to the homeowners’ association board.

 

Now, past the faux regal gates, beyond the clubhouses, many property owners in associations owe more than their homes are worth.

 

‘Many’?  I doubt that.

 

Some are struggling to pay their bills after they lose a job. Others have had their pay cut. So they’ve stopped paying their association dues.

 

Understandable but wrong.

 

To combat the rise in delinquencies, boards are switching off utilities, garnishing income and axing cable. They are yanking pool passes and banning the billiard room.

 

While these sound petty, they are perfectly appropriate; can you imagine having paid your association fees, only to see someone who’s flouting them sipping a mai tai next to you?

 

Some of us paid our association dues … and some of us didn’t

 

And, in the most extreme cases, they are foreclosing.

 

The association board has a duty to collect replacement reserves – otherwise either the condo physically deteriorates, or those who are good homeowners pay and those who don’t get a free ride.

 

The notice board of shame: defaulters in a Mumbai co-op

 

“The treacherous part is that homeowners’ associations are acting like a local government without restraints, and they have this extraordinary power,” says Marjorie Murray, a lawyer and founder of the Center for California Homeowner Association Law.

 

A woman on a crusade: Ms. Murray at left

 

Homeowners associations have no more power than their homeowners gave them in the organizational documents – and right now, their biggest problem is not their powers, but their capitalization:

 

[Continued tomorrow in Part 2.]