A modest housing tract, set amid pecan trees here in suburban Phoenix, faces big problems: About 40% of its homeowners aren't paying their association fees, leaving neighbors with higher assessments and reduced services.
"We're looking at a very deep hole," says Kent Miller, president of the Los Arbolitos Homeowners Association in Avondale. "I don't know how we're going to get out of it. We've put liens on all the (delinquent) properties, but it doesn't do any good."
It's a scenario being repeated across the country. Delinquent fees at condo and homeowner associations have become an outgrowth of the mortgage crisis. Housing cooperatives, in a squeeze because of unpaid fees from struggling homeowners, are scraping to pay for landscaping, maintenance, pools, recreation centers and other amenities.
"It's happening all over," says Frank Rathbun, a spokesman for the Virginia-based Community Associations Institute. "It's a national problem."
The institute estimates there are 300,000 homeowner and condominium cooperatives nationwide, representing one in every five Americans. Assessments, which resemble self-imposed community taxes, total about $40 billion a year.
Though it's not known just how many delinquencies have hit community associations nationally, the problem has escalated with a surge in foreclosures. The number of homes in the USA facing foreclosure in April jumped 65% over the same month in 2007, RealtyTrac reported this month.
To cope with unpaid fees, association leaders have tried to become creative. Many are negotiating discounted service contracts, running volunteer cleanups, cutting insurance coverage and attending seminars on how to collect money from members.
In Phoenix, Shawn Stone, a lawyer for homeowner associations and property managers, says the problem is most acute at new developments. Some homeowner boards, Stone says, have been able to collect assessments from only half their members. "It's not going to be too long before we'll see situations where associations are going bankrupt."
In Florida, homeowner groups surveyed by the Community Association Leadership Lobby complained that even some banks are failing to pay association fees after foreclosing on homes.
"The whole issue of foreclosures is dire and getting worse," says David Muller, a Sarasota lawyer who co-directed the survey. "It's causing the rest of the owners, who aren't delinquent, to pay even more money."
The "snowball effect" began, Muller says, as buyers, many of them speculative investors, started snapping up homes using subprime loans. As housing values plunged and mortgage bills ballooned, some buyers owed more on their mortgages than the homes were worth. So they stopped paying community association fees, then walked away.
In 13 states, banks or mortgage companies generally must pay at least a portion of the delinquent community fees when they foreclose. In other states, the association's only recourse may be to sue for unpaid fees, thereby racking up legal bills in what often turns out to be a futile pursuit of dollars owed.
"At one place in Florida we had seven (foreclosed) homes on one street," says Steven Brumfield, vice president of operations at Wentworth Property Management, which serves 950 community associations in more than a dozen states. "The association could not even afford to cut the grass, there were so many of them. They ended up with a street full of homes that looked horrible and wouldn't sell."