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
Additionally, if your condo complex’s units are within the FHA loan price range for your area (between $271,750 and $729,750), prospective buyers’ lenders might totally refuse to lend them the money to buy a unit in a complex with more than a 15 percent HOA delinquency rate — and they will actually check with the HOA.
And that’s not to mention that when condo owners stop funding their HOA, the association suffers, and may even have to reduce or suspend property maintenance services and cut back on other amenities — not a good look, when would-be buyers show up and the grass is taller than they are.
When other units in your complex stay on the market longer — or don’t sell at all — because of HOA delinquencies, this brings the value of your home down. Since the only homeowner you can control is you, paying your dues is one critically important way you can protect the value of your largest asset.
Action Plan
1. Before you let your HOA dues lapse, get serious about implementing a monthly spending plan, listing out all your income and all your expenses to see if there are any other line items that can be eliminated (Dinners out? Cable TV?) or minimized before you miss an HOA dues payment.
2. If you got a tax refund this year, you might need to adjust your payroll tax withholdings to bring home more money every month — consult with your tax professional to see if that makes sense for you.
3. Overall, get very aggressive about seeing if you can free up the cash to make your HOA dues payments — it’s extremely important, and it’s probably the most important thing you can personally do to minimize the depreciation of your home in this market.
Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.
