Late HOA Payments Good Predictor of Mortgage Delinquencies
I just came across an article posted on the Community Associations Network website tallying the top 10 condo and HOA news stories of 2010. What made the top of the list? Revenue shortages. With so many owners going into foreclosure, associations nationwide were caught in a downward spiral of ever-decreasing income. The article ends with a "good luck to all of you out there dealing with this issue again this year", knowing that 2011 would be just as bad, if not worse. And it was. In 2012 a few things may change.
For investors and servicers, HOAs pose a major challenge, particularly in the 16 “super-lien” states where an HOA lien has priority lien rights over a mortgage.
Predicting how a mortgage will carry these issues is particularly challenging, since HOA delinquencies do not appear on credit reports. By the time a mortgage delinquency shows up on a credit report, late HOA dues and fees may have already accumulated significantly. That means that in any of the 16 super-lien states, an oversight in addressing an HOA lien can lead to the mortgagees being totally wiped out from a foreclosure by an HOA.
This doesn’t have to be the case. Mortgage servicers and HOAs are eager to communicate with one another. Often it’s a lack of up to date contact information that prevents the two parties from working together.
Part of the problem is sheer numbers. Nationally, more than 60 million Americans live in an estimated 315,000 homeowners associations, condominium communities and residential cooperatives, according to the Community Associations Institute.
There's good news here somewhere. We’ve noticed an interesting pattern in the behavior of consumers that could prove very valuable to mortgage servicers: when mortgage borrowers start having financial difficulties, their homeowners association fees are often the first thing to go unpaid.
Homeowners stop making their HOA fee payments before they stop making payments on most consumer debt, and long before they stop making mortgage payments. HOA payments can actually be used as predictors of borrowers going south-- and that's valuable information.
So this year HOAs will have far better communications with servicers and banks, as everyone has something to gain.
HOAs want to get paid. Servicers and investors want to be warned that borrowers are not paying. And they don't want to be surprised when they execute a loan modification, process a short sale or foreclose on a property with major HOA debts. In fact, we expect HOA account surveillance is likely to become as commonplace as tax lien surveillance has been to servicers for decades.
The bottom line? Providing more information to both servicers and homeowner associations during the life of a loan can only benefit both parties.
Brent Stokes is senior vice president of Sperlonga Data & Analytics, an Arlington, Virginia-based firm that helps connect HOAs, servicers and banks to get claims for unpaid HOA fees resolved. He can be reached at: B.Stokes@SperlongaData.com.