HUD Ends Effort To Collect Condo & HOA Fees

by Peter G. Miller
October 4th, 2007

HUD has published a final rules which impacts those who live in condos and properties governed by homeowner associations.

HUD has considered the idea of escrowing condo association and HOA dues; that is, requiring FHA borrowers to pay dues and fees into an account and then paying the condo association from the money collected. The logic behind this idea is not unreasonable because unpaid condo fees or a lien against the property which means that property owners who don’t pay even small charges may find that they face foreclosure. While one would hope that no human being is ever foreclosed because of a minor financial dispute such debates have been known to get out of hand.

However, in the face of public comments HUD has decided that it will not require condo or HOA owners to escrow fees. The technical jargon is below:

“HUD,” according to the Federal Register, “proposed to amend 24 CFR 203.23(a) to require a provision in the mortgage for the payment by the mortgagor of homeowner or condominium association fees. Toward this end, HUD proposed to amend Sec. 203.23 to require mortgagees of FHA-insured mortgages endorsed on or after the effective date of the final rule to collect, as part of the monthly mortgage payment, an escrow of the amounts necessary for the payment of these fees when they become due. HUD also proposed amending Sec. 203.24(a)(1) to require the mortgagor to assign that part of the monthly payment received from the mortgagor for condominium or homeowners’ association fees.”

In response to this proposal, HUD said that “based on public comments received on these provisions, HUD has determined that a mandatory escrow requirement for condominium and homeowners association fees is not feasible. Therefore, HUD has removed
the corresponding homeowner and condominium association fee provisions that were proposed at Sec. 203.402(a) and (j).”

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5 Responses to “HUD Ends Effort To Collect Condo & HOA Fees”

  1. Scott Mason Says:

    As local governments are more and more forcing HOAs to provide services and amenities the local governments can’t or won’t, HOA dues are becoming more tax-like.

    Years ago, HOA dues paid for a few parties and some extra flowers at the entrance. Now, they pay for swimming pools, parks, tennis and basketball courts, and playgrounds — all services and amenities local governments used to provide for all community residents. Without HOA facilities, community facilities would be overburdened.

    HOA’s cannot pay to maintain these without fees. Defaults drive up costs for all other members. Therefore, our HOA is an aggressive collector of fees.

    Without escrowing, our HOA members are subject to liens as soon as they are in default and foreclosure if the lien goes unpaid for over a year. These Draconian measures are to protect both the HOA and the homeowner by keeping the proportions of the debt in a reasonable range. The costs of late payment penalties, the lien costs, and the foreclosure are extremely high and are not ‘forgiven’ because they are paying expenses the homeowner caused the HOA.

    For example, this year we had one homeowner paying over $2600 to cover less than $1200 in late HOA fees plus over $1400 in legal costs and late payment penalties. None of the legal costs billed benefited the HOA. Late payment penalties go to the management company for collection fees.

    To fail to escrow the HOA fees ignores their function as pseudo-taxes, burdens the HOA with the need to collect homeowners in default, and burdens the defaulting homeowner with high costs and other problems. Ideally, everyone pays all bills cheerfully and on time but in practice, the house payment takes precedence over the charge account. Escrow accounts for HOA dues help keep a family’s most valuable asset protected.

  2. Peter G. Miller Says:

    Scott –

    Wow. Thank you.

    You have got it exactly right. Little teeny tiny HOA fees if unpaid can lead to big legals costs and even the loss of a home. On the other side, HOA’s have a legitimate need for their fees.

    The problem here is that it seems terribly unfair that someone could lose a home over a minor amount. I agree that all lenders should escrow condo fees for the very reasons that you cite.

    A terrific comment, please check in with us regularly. We’d like to hear more from you.

  3. Bill Says:

    Although some might suggest that the homeowners benefit from elimination of this practice, the real beneficiaries are the management companies that are in the business of creating and collecting these fees. Unfortunately, elimination of the escrow also enables management companies in many states to continue the “priority of payment” scam where they re-characterize assessment payments into other fees for the benefit of the management company and to the great detriment of the homeowners. These management companies use the HOAs power to foreclose to extract all sorts of other money from the homeowner. The two biggest stakeholders (owners and lenders) will continue to get shafted by parasitic management companies until lenders start getting involved in curbing these abuses. As it stands today, the lenders are funding the abuse by loaning monies in these HOAs.

  4. Peter G. Miller Says:

    Bill –

    Thanks for your note.

    You raise an interesting idea, the thought that management companies are getting, in effect, collection fees. That just makes matters worse for everyone, given that management companies are already being paid.

  5. Cynthis Stephens Says:

    This is an unfortunate choice. I know personally what these groups do to innocent, vulnerable populations. The will make upp any lie, (even tell a court they own property they don’t), make up fees, terrorize innocent families., etc.. The list goes on and on. The public health costs relating to this mess are unthinkable. The trauma, just go to: http://www.ahrc.com, really nat. site, and read about the lates young victim, who tyook he life, over this legal abuse of innocent families. Google: “The HOA Gravy Train,” by Bob Metcalf, of PA. This is an excellent resource. Visit “the voice,” Shu Bartholomew’s site: http://www.onthecommons.us, and hear the most notable. The current guest, Dr. Evan McKenzie, “Privatopia,” Private Gated Communities in America, etc…, or, the archives has everyone who is notable: law makers, advocates, authors, etc. Those willing to do something and tell the truth!
    Another site. Two brilliant young men, who HAD to present this horror in a different light:
    People need to do their homework and understand the FACTS!

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