NATIONAL – The Hidden Impact of HOA Delinquencies
Homeowners association claims pose serious threats to servicers and investors. The number of associations in the U.S. is estimated to be between 300,000 and 350,000 and more than 80% of new construction homes are part of an HOA.
Since one out of every five households belongs to an HOA, lenders and servicers must understand the necessary rules and regulations and exercise extreme caution when processing these delinquent properties
Successfully managing delinquencies has always presented a challenge for servicers, but recently the process has an added layer of complexity, as more borrowers also become delinquent on homeowner association fees.
Portfolios with high volumes of real estate owned, underwater or foreclosed properties can be riddled with HOA liens, burdening the servicer with the task of identifying the appropriate parties and negotiating a series of individual deals to free properties up to market or sell.
Data from Sperlonga shows the portfolio risk nationwide, and the scope of the uphill battle is evident: out of 1 million homes in HOAs, 200,000 of those are in delinquency, and the average amount of delinquency is $7,200.
This might seem like a relatively minor issue, but there are instances where money due to an HOA actually takes priority over that of the principal mortgage — effectively halting a short sale, foreclosure or preventing the property from entering REO status. Currently, 21 states have what is known as “super-lien” status, giving past-due amounts priority over any existing mortgage, and according to Sperlonga, 42% of all delinquent loans are located in these states. Read more: