HOA defaults ruin resale values

Q: Times are tough. I work for my state, which has budget problems and is requiring me to take one day per pay period off work -- for no pay. I'm barely keeping up with my adjusting mortgage payments on my condo. Some months I struggle to pay my HOA (homeowners association) dues. What will happen if I can't keep up with them?

A: If your mortgage payments have begun to adjust already, you really should talk with your lender about the possibility of a loan modification, to make ends meet a little bit easier. If you need guidance, contact a HUD-approved homeowner counseling agency such as www.HomeFreeUSA.org, which will run interference with your lender at no cost to you (Well, no cost beyond your tax dollars that fund their programs!).

But let's get directly to your question: What happens if you can't make your HOA payments?

Mindset Management

I understand that when your income goes away but your expenses stay the same, some things just can't or don't get paid. So this issue is all about priorities: Are you making every household budget cut possible before you decide to default on your dues? In my personal experience, one of the best upsides of this down market is that it has ushered out the era of Conspicuous Consumption and ushered in the era of Conspicuous Frugality. Make sure your own personal finances have also made that shift before you conclude that there's not enough money to pay your dues -- I would classify them as high priority.

Need-to-Knows

Your HOA, or homeowners association, essentially holds a lien on your property, similar to your mortgage, which it can assert to foreclose on your home if you do not make your HOA dues payments. That's bad, but somewhat unlikely in this market, due to the expense of foreclosure and the very low likelihood that your HOA would recoup anything after paying off your mortgage lender(s).

What is worse, and much more likely, is that by defaulting on your HOA dues, you will directly and indirectly drop the value of your home. Here's what I see all the time -- my buyer clients and I are house hunting or, excuse me, condo hunting and find several units that look interesting. However, so many of the owners in the complex have defaulted on their HOA dues payments that the HOA is going broke and has had to jack up the dues to account for the fact that so few owners are actually paying them. This is why we see $200,000 condo units with $600/month HOA dues -- buyers won't touch that with a 10-foot pole! ...CONTINUED

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