Q: I own a condo that has been listed for sale. I have accepted an offer that is contingent upon a new 80 percent LTV loan. Since my homeowners association (HOA) is so poorly run, the prospective buyer cannot obtain financing — the complex was built in 2006 and the HOA has zero dollars in reserves, greater than 15 percent delinquencies and no "fidelity" insurance with more than 20 units.

The mortgage company is also wary because of a large number of units being rented — obviously the owners who can’t sell to cash buyers are becoming reluctant landlords. What is my recourse against the HOA? I paid cash and my condo is in impeccable condition, and I have a buyer with 20 percent down who is seeking "normal," conventional financing.

With all of the strikes against the HOA, the mortgage company cannot make an exception. Isn’t the mismanagement on the part of the HOA a breach of fiduciary responsibility? Their actions (or lack of appropriate actions) have devalued my property, my investment, through no fault of mine. What can I do now? –Maralyne

A: Thank you for giving me such good detail about your HOA’s situation. While I don’t know every single relevant fact, I do know enough to challenge your primary assumption: that the HOA drama that is stopping your would-be buyer from getting a mortgage is due to your HOA being "poorly run."

Forgive me for making assumptions here, but the issues you list are extremely common in HOAs from coast to coast right now, and they much more frequently arise from market conditions (i.e., the recession) and the inability or refusal of your fellow HOA members to pay their dues more than from HOA mismanagement.

As you mention, the reason HOA members are renting their units is because they’re essentially forced to do that or walk away from the homes, because market values have declined below the top-of-the-market purchase prices and loan balances in 2006. When people can’t sell their units for what they owe on them, they either rent, short-sell or walk away, and I assure you that renting them out is vastly preferable from your perspective.

On the delinquency issue, unless the HOA is doing something bizarre, like not even trying to collect members’ dues, it would also be an uphill-to-losing battle to seek to hold the HOA itself responsible for members’ failure to pay. It’s not possible to force people to pay their dues, if they can’t or won’t do it.

Some members may even be forced by job loss or resetting mortgage payments to choose between paying dues and paying the mortgage and, again, you’d rather they paid the mortgage and avoided foreclosure.

The only other alternative available to the HOA is to foreclose on the delinquent units, and even that costs money and may even have a significant downside if the units are seriously upside down and couldn’t be resold for the outstanding mortgages.

Beyond that, to sue an HOA to which you belong is essentially suing yourself, as you could very well have some share in any liability incurred by the HOA, including legal defense fees, which a broke HOA would need to recapture from its members.

And what’s more, suing your HOA would actually make it more difficult for a prospective buyer to get financing to buy your unit — not less — because many mortgage lenders refuse to extend home loans to purchase units belonging to HOAs involved in litigation.

Should you be upset? Absolutely. Should you sue your HOA? Unless there’s some smoking gun of which I’m not aware, absolutely not.

In hindsight, there are a few things you might have done differently to avoid owning a unit in an "unsellable" complex, but given that most of this mess is market-made, without a crystal ball, it’s pretty unlikely you could have avoided this.

To edify current condo buyers, though, some steps to consider include making sure there is a clause in the HOA documents limiting rented units to less than 25 percent of all units and/or requiring HOA approval before units are rented out. (Of course, even with such clauses, if the market falls and owners are forced to rent units out, it’s arguably a sound business decision for the HOA to allow them to rent the units so they can avoid a foreclosure epidemic, which almost inevitably snowballs into an epidemic of delinquent dues.)

Also, reviewing an HOA’s financial reserve documentation is essential, although, again, if the market causes many units to fall delinquent on their dues, the HOA may not be able to save as planned and projected — it sounds like this might be what happened in your case.

Finally, getting and staying active on your HOA’s board is another very useful position to be in when a recession strikes, so you can help chart the association’s course when it comes to the issues relevant to keeping units saleable.

If your alternative is to see the entire deal fall apart, consider extending seller financing with a balloon so that the buyer will be required to pay you off by refinancing when the market recovers; there are certainly downsides, most notably that you would get cashed out up front only to the extent of your downpayment. If you go this route, do so only with the input of a real estate attorney and your tax adviser.

Also, consider becoming active in your HOA board and spearheading a plan for "encouraging" your fellow HOA members to pay their dues.

And, finally, the next-generation HOA-financing glitch I’m starting to see come down the pike is the large numbers of HOAs that are not HUD-approved. Your condo is a fairly new complex, which means it may have approval, but it behooves you to verify this and, if not, lead the charge to obtain HUD approval so that units will be saleable using the increasingly popular FHA financing.

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