Anyone who stops paying a mortgage knows the bank can come after the home.
But homeowners associations foreclosing on properties?
That's right. HOAs are seizing more and more property as owners stop paying their monthly assessments.
Some are going a step further — renting out the seized properties to recoup the lost dues. And thanks to a new law, they don't even have to foreclose to collect rent in some circumstances.
Barbara Monahan, president of the Cove Association in the Mirabay neighborhood of Apollo Beach, sees the rental option as a win-win out of an unfortunate situation. Homeowners associations use the cash to keep the community and the home in good shape, and renters get cut-rate rent.
"It benefits both of us," Monahan said.
Monahan, a 27-year real estate veteran with Century 21 Beggins Enterprises, stressed that they warn renters that the bank could foreclose at any time, forcing the renters to find a new home. Most renters don't mind, she said. The risk is worth it in return for the cheap rent. Besides, many banks are moving very slowly on foreclosures, especially if they know a homeowners association has foreclosed and is renting out the property.
The banks say that the units will be better maintained if they are occupied.
"They don't want them on their books," Monahan said. "The banks know they are being taken care of."
Homeowners associations require dues to maintain common areas — pools, parks, landscaping and lighting. After owners default, the associations are left with few options. They can either slash services or raise the fees.
Associations generally attempt to work deals with homeowners and only foreclose after dues go unpaid for more than a year or longer, experts say. That way they avoid the attorneys fees and court costs that come with foreclosing. By foreclosing, the associations are also on the hook for maintaining the seized properties — which are more often empty when the foreclosure takes place — and fixing any damage before renting them out.
Banks are slow to foreclose on many properties because they become responsible for the association fees, experts said. But initiating a foreclosure or being granted the title by a judge does not allow the associations to sell the properties. They can't sell because of the bank's original lien, which still must be satisfied.
A Florida law enacted on July 1, 2010, allows homeowner and condominium associations to seize rent from tenants who rent from delinquent owners — even before foreclosing.
After obtaining a court order to seize the rent, the associations can collect what is owed, said Tampa lawyer James De Furio, whose practice is devoted to associations.
"It is an attractive device to collect money," he said. "We're doing a lot of this now. It seems to be successful."
Frank Rathbun, a spokesman for the Virginia-based Community Association Institute, said associations don't want to foreclose, but will as a last resort.
"Associations have to operate as the businesses they are," Rathbun said. "Homeowner associations have a responsibility to maintain the community."
There's no data on exactly how many properties are seized by homeowners associations, but experts say the numbers are climbing.
Nationally, about 62 million people live in 310,000 homeowners associations, condominium communities, residential cooperatives and other planned communities, according to the Community Association Institute. A survey by the group in October found that 65 percent of homeowners associations have delinquency rates exceeding 5 percent, up from just 19 percent of associations in 2005.
Tampa-based Rizzetta & Co., which manages more than 100 community associations with 32,000 homes in Florida, has added staff to handle the increased foreclosures.
President William Rizzetta stressed that buyers should carefully examine records when buying property in associations and request financial information from the sellers. Homeowners associations acquire foreclosure rights when owners sign purchase agreements to buy the properties.
Most buyers are not aware of that, he said.
"Read your documents," he said. "You're signing them."
All associations are looking at ways to save money and trim expenses in the wake of the foreclosure crisis, Rizzetta said. Foreclosing on properties and then collecting rents helps make sure they have enough money to provide a level of service that keeps the remaining dues-paying residents happy.
Delinquencies have forced many associations to tack on special assessments each month and to renegotiate prices with vendors to maintain services in a community, said Heather Russel, a Rizzetta manager.
Associations don't want to foreclose or become landlords and will devise payment plans with homeowners, she said. Property owners, she stressed, shouldn't ignore the monthly fees when financial issues arise. Monthly assessments still mount when owners abandon their properties.
"If you can't pay, call somebody," she said. Not calling is "the worst thing you can do. The associations are not the bad guys."
The Charleston Place Townhomes Association in Tampa initiated several foreclosures last year in the 82-unit complex after unpaid dues forced it to gut services. The group became more aggressive in collecting after multiple owners fell into foreclosure, said president Judd Tyler.
Some owners were renting out their homes and pocketing the rental payments, without paying down their delinquent dues or mortgages. The association won court orders that allowed them to seize those rent payments directly from the tenants, before the money wound up in the pockets of the delinquent owners.
The move enabled the group to restore services and return to a positive cash flow, Tyler said.
"It took away the cash cows," he said about the owners. "The owners have to walk away or deal with us."
Mark Puente can be reached at email@example.com or (727) 893-8459.