Arizona sees spike in foreclosures initiated by HOAs

Sept. 18, 2017

Transcript:

Ted Simons: Good to have you here. Up next on "Arizona horizon," details on a spike in foreclosures by homeowners associations. The Arizona Republic reports that valley homeowners associations are leading a surge in foreclosures, with some HOAs moving against homeowners for as little as $1,200 in unpaid fees. Joining us now: Arizona Republic reporters Catherine Reagor and Jessica Boehm. Good to have you both here.

Ted Simons: Thank you for joining us. We appreciate it. HOAs, I guess I should have known this, an HOA can foreclose on a homeowner?

Catherine Reagor: You find it in the ccnr and it's Arizona law, and they can do it. The first part, most people don't know that can happen.

Ted Simons: We are not talking liens, we are talking foreclosures.

Catherine Reagor: They start with liens and they can go all the way to the foreclosure and take the home. During the crash, there were so few HOA foreclosures, they weren't even tracked. It wasn't an issue until the past few years.

Ted Simons: What's changed?

Jessica Boehm: People have equity in their homes. What is different with the foreclosures, whoever buys the property has to pay off the lender. If you have a loan, that's not necessarily appealing to the investors. Now that there is equity, people are lined up to take them.

Ted Simons: Your reporting found as little as $1,200 unpaid fees, here comes the foreclosure?

Jessica Boehm: It can. They have to file a judgment against you, but $1,200 or one year, if your HOA fee is a couple of hundred a quarter, it can be less than $1,200. They can move to foreclose.

Ted Simons: I imagine there are legal fees, fines -- it all adds up.

Catherine Reagor: The legal fees kick in at $1,200. Some attorneys have smaller legal fees and hoas, but some, $1,200 kicked in. Within a few months, they owed $4,000, $5,000. There were team of attorneys working on one case.

Ted Simons: You are saying hoas in these instances supersede lenders?

Jessica Boehm: Not necessarily. They can supersede them in the sense that they can foreclose. Whoever takes on the -- whether it goes back to the HOA or investor buys, they have to pay off the lend are.

Ted Simons: As far as logistics.

Jessica Boehm: They can foreclose first.

Ted Simons: What happens to the homes then?

Catherine Reagor: They had equity. One example $270,000 north Scottsdale condo. A man used his retirement account. It drew 50 bids in five minutes, started at $50,000 and sold $153,000 and the condo was worth 350. Whoever got it, that's why the rapid bids, could flip it quickly.

Ted Simons: I imagine they were hot, heavy and furious on some of these properties. There is a spot in the courthouse you throw money around.

Jessica Boehm: And you can get some good deals. I have watched a few of them happen.

Ted Simons: So HOA is more aggressive because of the housing market?

Jessica Boehm: And to their credit, a lot of them are catching up. A lot of them were kinder during the foreclosure, during the bust, if you will, and didn't move to foreclose as often. Now that people should be in a better financial state and the HOAs themselves are picking up the paces of where things were, they are looking to foreclose more often.

Ted Simons: I know the thought of many watching now is pay the fee. You are not paying the fee. What can the homeowner association do if you don't pay the fee?

Catherine Reagor: All of the homeowners said we are honest about that. They got behind, fees climbed, and it got to the point they couldn't catch up. They would try arbitration. They would say, I want to pay. Some attorneys are more aggressive than others. Sometimes it's a communication process. As you said, many don't know the HOA can foreclose and it comes to that point.

Ted Simons: As far as the law is concerned, what do they say?

Jessica Boehm: You hit $1,200 and you can foreclose. There is not regulation of HOAs in Arizona except for small areas. As far as foreclosure, you are going through the judicial system. There is not an arbitration process for, for closure.

Ted Simons: I noticed one person you interviewed called this a cash cow for lawyers.

Jessica Boehm: He believes lawyers get involved. As long as they get the situation going, they can keep adding fees.

Ted Simons: So a health crisis pops up, loss of job pops up. It's hard to pay the x. What happens if you are in good faith trying?

Catherine Reagor: Some HOAs work with homeowners. Some lawyers, it's their strategy to start the foreclosure process to get people to work out a plan. It's tough to deal with financials. We know this during the crash. It's a way to go. In many cases we have seen people have to lawyer up. Get the representation and get the responses and figure out a plan. Other homeowners file for bankruptcy protection and reorganization to say, hey, I’ll pay you there, but we have to put a stop on legal fees and the judge then gets involved with that.

Ted Simons: I imagine filing for bankruptcy before the deadline is a smart move?

Jessica Boehm: If you read the story, we talked to a woman who did just that. We followed her through the process. We tried communicating a little too late with her HOA lawyers. At the end of it, she went for bankruptcy.
Ted Simons: Going back to this, you should know this when you sign. Anyone that lives in an HOA, it's like reading an encyclopedia. You should have a pretty good indication with what's going on. If you are not paying your fees, it might be a hard luck story, but if you are not paying, others are. Is anyone working on a system that's not so draconian?

Jessica Boehm: There are some great at communicating that. To be pair to them, you are right. If I’m not paying, 99 other homeowners have to pay, but as far as every year at the legislature attempts to add more regulation, not a lot of them are successful, at this point, it's an industry group of community managers. They are helpful with encouraging communication before things get bad.

Ted Simons: What kind of response are you getting to your stories?

Catherine Reagor: A lot of responses. We finally through real estate records and groups and HOAs found there are 9,000 here in metro phoenix and half of all homeowners live in one, so people have strong feelings. There are those that love their HOA. It keeps the yard maintained and trucks in front of the yard, but sometimes you can't get the response, can't get the tally of what you owe. There is no group to really go to say, hey, I need help.

Ted Simons: When you have a problem, it's a whole different ballgame, isn't it?

Jessica Boehm: Exactly.

Ted Simons: Interesting story. Great to have you here. We appreciate it.

Catherine Reagor: Thanks, Ted.