When Helen Burgess fell behind on her bills after being diagnosed with cancer, she was able to work out payment plans on her mortgage, car note, credit card and tax obligations to the Internal Revenue Service.
Her neighbors weren’t so accommodating.
Because Burgess was late on her condo fees, the Magnolia Lane Condominium Association cut off her water soon after she returned home from surgery. That was June 27, 2009.
Since then, Burgess has been hauling water from her niece’s house 10 miles away. The condo group also tried in vain to garnishee the Marietta woman’s pay to collect the dues it’s owed, which, including attorneys’ fees, now totals more than $5,000. Most recently, it banned Burgess or her guests from using the clubhouse and other facilities in the 76-unit Marietta community.
“This is the craziest mess I’ve ever had to deal with. It’s been an ordeal,” said Burgess, 59, who has been unable to reach a financial agreement with the association. She even asked her pastor to intervene. It didn’t help.
The condo association and its attorney declined to discuss Burgess’ situation, other than to say they are “trying to work with her.”
While Burgess’ treatment may seem harsh, she’s more fortunate than some homeowners in similar situations. Some who have fallen behind on homeowners association fees — despite being current on their mortgages — have been sent into foreclosure by associations determined to collect.
Georgia is one of about 30 states where HOAs are empowered to take such drastic action. Though solid data on the trend is not available, by all accounts, such foreclosures — and other get-tough tactics — have occurred more often during this recession than in previous downturns.
HOA representatives say such actions are not taken lightly, and that they often have no other means to recoup fees that can quickly add up to thousands of dollars. In HOAs where not enough members are making payments, an association can quickly find itself verging on failure.
But for individual homeowners like Burgess, who says she has repeatedly tried to work out a repayment plan, such actions are disheartening.
“Going through this is more frightening than when I went through breast cancer,” she said.
Usually a last resort
The issue of HOA-initiated foreclosures garnered national attention recently when Army Capt. Michael Clauer returned to Texas from a tour of duty in Iraq to find that the $300,000 four-bedroom he owned free and clear had been sold on the courthouse steps after his wife missed two HOA payments.
The house was sold for $3,500, just enough to pay the delinquent dues and legal fees, then resold by the new owner for $135,000. A Las Vegas couple temporarily lost their home over an $81 association fee debt.
In Georgia, homeowner and condo associations can foreclose on members’ homes if they are more than $2,000 behind on their dues.
Bank-initiated foreclosures in Georgia can mean a home is sold at auction within 37 days. Associations, however, must file a lawsuit to start proceedings, which can take anywhere from four months to over a year.
For HOAs, foreclosures are a last resort, said Doug Goldin of Marietta, attorney for Magnolia Lane. “Most don’t want to go down that road because of the cost and what you’re doing to families,” he said.
Associations that do pursue foreclosure can wind up collecting a fraction of what is owed. So why do it?
“You can rack up $15,000 to $20,000” in overdue association fees, Goldin said. “Generally, the best route is to do the foreclosure. So you can get a new homeowner in and they may pay better than the last.”
In many states, including Georgia, HOAs have a wide range of alternatives to draw on. With a court’s permission, they can attach liens or garnishee wages and bank accounts. They can also, as in Burgess’ case, shut off a homeowner’s water and block use of association amenities.
But even associations willing to work with a struggling homeowner can find themselves losing out if a bank steps in to foreclose on a homeowner first. So, many circumvent such problems by going to court. In Cobb County Superior Court alone, there are dozens of cases of associations that have attached liens against or are suing residents.
HOAs feel threat
Officials with homeowners and condo groups say they sometimes have to take tough actions to protect their interests.
It’s one thing when a resident is sick or has lost a job and can’t pay. It’s another when the resident who hasn’t paid in months installs granite countertops in the kitchen.
“We’re the last consideration and that’s not fair. We shouldn’t come after HBO [cable TV payments],” said John McCosh, secretary of the South Prado Unit Owners Association, a 23-condo complex in Ansley Park.
Earlier this year, his association adopted a no-exceptions policy after dealing with several delinquent homeowners, including one whose bill amounted to nearly 10 percent of the association’s budget. That person is now an international fugitive.
There are an estimated 10,000 to 15,000 association-run communities in metro Atlanta alone. About a fifth of the U.S. population lives in HOA communities. That number grew substantially in the past 20 years as more homeowners sought communities offering all-inclusive amenities.
With those amenities came obligations once handled by cities and counties, such as road maintenance, in addition to landscaping, pool care, water bills, insurance and capital improvements.
HOAs rely heavily on member dues to run the properties and cover major repairs and improvements.
When the housing market collapsed and recession followed, many HOAs were forced to cut back, raise dues and make other concessions to stay afloat. They also saw members’ homes lost to bank foreclosures.
Kathy Dorough, a Decatur attorney, says three-fourths of her practice involves collection of HOA and condo association fees. Her firm has about 2,500 open lawsuits.
“Our members have been very negatively impacted by the economic situation,” said Dorough, president of the Georgia chapter of the Community Associations Institute.
‘An awful big stick’
Several lawyers who represent HOAs estimate that at least a few dozen local associations have failed as a result of delinquent homeowners. Nowadays, said Marietta attorney Goldin, it is not unusual to see HOAs with 1,000 homes or more with half to two-thirds of the homeowners not paying their dues.
“I’ve practiced law for 31 years and, by far, this is the worst downturn I’ve seen and the first downturn where the number of homeowners not paying their dues is staggering,” said Seth Weissman, a founding partner at the Atlanta law firm of Weissman Nowack Curry & Wilco, a specialist in HOA issues.
If an association goes under, the value of its properties is wiped out, worsening an already fragile housing market. Banks won’t loan money if an association has delinquent payments of more than 25 percent because the fees serve as security on the loans.
But three years into an upside-down economy, some HOAs are cutting their losses. Many are now writing off bad debt rather than throwing good money after bad, Weissman said.
“They’re being more selective,” said Weissman, more often targeting a homeowner’s paycheck or bank accounts. Foreclosure, he said, is “an awful big stick” to use when other options are available.
A neighbor’s view
Magnolia Lane is an immaculate collection of brick condos ringed with greenery and gazebos. It’s a quiet, pleasant Cobb County community that evokes a cover of Better Homes & Gardens magazine.
“When you’re in a community like this, you’re trying to keep up the value of the neighborhood,” said association president Carol McDaniel.
Asked about the financial hardships of some of her neighbors, McDaniel responded: “Nowadays everybody’s fallen on harder times due to this economy. It’s a tough situation when the economy’s down.”
Still, her HOA has taken about a half-dozen of its members to court to collect past-due fees, including McDaniel’s next-door neighbor, Helen Burgess.
Earlier that day, Burgess returned from filling 30 or so jugs with water from her niece’s garden hose. She’ll use it for flushing toilets and for taking quick showers using a watering can. She buys bottled water for cooking and drinking.
It’s an ironic twist for a woman who spent 20 years selling homes, a job she’d hoped to return to after recuperating from cancer. But then the housing market collapsed, so she wound up taking a $10-an-hour call center job and other odd jobs.
She couldn’t sell her condo because of the poor real estate market. She asked to have her water restored so she could get a housemate to help pay her dues. But association rules wouldn’t allow it.
The impasse has made for some awkward moments with her neighbor, the HOA president.
Neither McDaniel nor association attorney Goldin would discuss specifics of Burgess’ case.
“They are trying to work with her,” Goldin said. “I hope they don’t get too much of a black eye from this.”
How we got the story
Sunday business reporter Tammy Joyner learned about the power homeowners associations wield from an out-of-work friend having trouble with her association.
Intrigued, Joyner spoke to experts in real estate, bankruptcy and consumer rights advocacy, as well as some of the leading HOA law firms in metro Atlanta. A legal aid attorney she spoke to told her about Helen Burgess.
Joyner also sorted through records filed by HOA and condo associations with the Cobb County Superior Court Clerk, and spoke with several people who sit on the boards of their associations to get a feel for what HOAs experience.