When the neighbors, not the bank, foreclose on your house

Some lose homes after dues slip

Lacey and Steve Pilat Lacey and Steve Pilat got a foreclosure notice from their homeowners association four months after Lacey lost her catering job and she owed the group $1,800. (Matt Slocum/Associated Press)
By Paul J. Weber
Associated Press / June 12, 2009

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IRVING, Texas - Thousands of Americans who have generally kept up with their mortgages are still in danger of losing their homes because they made a fateful trade-off in this shaky economy - they let their homeowner association dues slide.

Many homeowners are learning to their surprise that condo and neighborhood associations that oversee security patrols, mow lawns, plant flowers, and clean the community swimming pool may have the right to foreclose when dues aren't paid. That right is often written into the purchase agreement signed by the homeowner.

Among those who have been threatened with foreclosure is Lacey Pilat, who lost her job catering corporate parties and nearly lost her two-story house in the Dallas suburb of Irving.

These foreclosure actions do not necessarily pit neighbor against neighbor. Many homeowner associations have turned the job of collecting member dues over to outside management companies. And to them, it's strictly business.

Homeowner association boards and their management companies defend the practice, saying maintaining the neighborhood preserves property values.

"We have compassion for those folks. At the same time, we feel for the rest of the homeowners who are paying their dues," said Andrew Schlegel, executive vice president for Merit Property Management, which manages more than 140,000 California homes in community associations. In California, associations can foreclose after 12 months of missed fees or $1,800 in back dues.

In fact, most people end up saving their homes. Homeowner association boards often work with down-on-their-luck neighbors to come up with some sort of compromise. That's what happened with the Pilats.

Gauging the number of foreclosures nationwide by homeowner associations is difficult. But in Texas, foreclosure attempts initiated by homeowner associations in 19 counties are up 30 percent from two years ago, according to Dallas-based Foreclosure Listing Services.

The foreclosure actions have renewed longstanding complaints that homeowner associations are often made up of power-drunk residents who enjoy lording it over their neighbors.

"You have a number of them being run like little totalitarian regimes," said Texas state Representative Burt Solomons, a Republican who has unsuccessfully tried passing association overhauls for years.