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Homeowners' Associations Face Tough Times

Lack of payments leads to loss of shared services

May 26, 2009
The dramatic drop in home sales and real estate values has robbed homeowners of net worth, and in the case of foreclosure, of the roof over their heads. Now there's a prediction that many of the nation's homeowner and condominium associations will be the next casualties.

Evan McKenzie, associate professor of political science at the University of Illinois at Chicago, suggests there could be a broad impact as approximately 300,000 homeowner and condo associations in America house about one-sixth of the nation's population.

"These associations place too much reliance on the resources of homeowners — their money, time, energy, wisdom, and loyalty. Homeowners stop paying their association assessments before they stop paying their mortgage, and banks routinely refuse to pay assessments after they foreclose," he said. "The result is that thousands of associations are being financially supported by fewer and fewer residents, setting in motion a chain of events that leads to insolvency."

McKenzie says homeowners are being left with major expenses and problems as many developers go bankrupt and leave subdivisions partly finished.

"They turn to their local government to take over their private streets that they can't afford to repair, or the playground they can't afford to insure, or the lake they can't afford to clean, and the municipality says, 'No,'" he explains. "The owners get stuck with ultimate liability, because they have to disclose all these problems at the time they try to sell."

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