Calif. Eyes Homeowner Association Changes

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Calif. Eyes Homeowner Association Changes

http://news.yahoo.com/news?tmpl=story&u ... showdown_1

Sun Aug 8, 2:43 PM ET

By JIM WASSERMAN, Associated Press Writer

CHULA VISTA, Calif. - As millions of Americans have moved into the nation's 260,000 privately run neighborhoods, they've been hit by rules on pets and door colors and hemmed by restraints on landscaping. If they're late with their dues to maintain common areas, sometimes for as little as $120, the associations, backed by a network of property managers and attorneys, can foreclose on their homes.

Cases like this have galvanized homeowners seeking to change the legal system governing what has become the fastest-growing neighborhood lifestyle in the country — neighborhoods run by private associations.

Despite a growing backlash, lawmakers throughout the nation have failed to make major changes. California, however, stands on the verge of banning foreclosure entirely in many instances, making nonjudicial foreclosure more difficult and rolling back the fee system that makes foreclosure lucrative to a small cadre of lawyers.

If approved this month by the Legislature and signed by Gov. Arnold Schwarzenegger (news - web sites), these changes will reshape how these neighborhoods work, especially how they collect their dues once residents get behind or don't pay.

Homeowner associations have boomed over the last three decades, largely because of fewer services provided by cash-strapped local governments and consumers who want rules to govern their neighbors' aesthetic tastes.

Like California, associations in Florida, Texas, Arizona and Nevada all have authority to ultimately collect their members' unpaid assessments by selling their homes. Combined, the five states have more than half the nation's supply of association-governed housing.

In Las Vegas, Judi Burns lost her $130,000 home when a judge upheld her association's March 2000 foreclosure sale over unpaid dues of $300. In Arizona, Evelyn Lyles nearly lost her home over $393 in unpaid monthly assessments. An anonymous donor paid when media accounts of the pending foreclosure described her battle with breast cancer.

Unlike municipal governments coping with late property tax payments, studies show that homeowners associations are quicker to seek foreclosure and for sums far less than the average late tax bill. Mortgage lenders also typically wait longer to foreclose and work harder to find alternatives, says Doug Duncan, chief economist of the Washington, D.C.-based Mortgage Bankers Association.

California lawmakers aim to rein in what critics call "foreclosure factories," law firms and collection agencies that earn $1,500 to $2,000 filing nonjudicial foreclosure proceedings against homeowners behind on dues.

"They go in there and find a resident who gets a little behind and hit him with an assessment, and then tack on thousands of dollars in attorneys' fees," said Evan McKenzie, an Illinois political science professor who wrote the 1994 book "Privatopia," a history of U.S. homeowners associations.

An unofficial survey of California's homeowners association lawyers released in June reported 19,450 foreclosure filings since 1999 in California and 145 homes sold for unpaid assessments.

Homeowners' association attorneys vigorously defend their practices and cast late-paying homeowners as the bigger threat to association life. Some say lawmakers are responding to a disgruntled 3 percent of homeowners.

But the California legislators is days away from passing legislation to throw out foreclosure entirely as a method for homeowners associations to collect debts under $2,500.

It's a bipartisan movement, motivated in part by the high-profile cases of Colburn and retirees Tom and Anita Radcliff, who for a late payment of $120 lost their $285,000 home in Calaveras County, the Sierra Nevada foothills setting for Mark Twain's celebrated Gold Rush jumping frog story.

Associations "need to look at other debt collection procedures before they go to these extreme measures," said Democratic state Sen. Denise Ducheny, the leading force in California behind curbing foreclosure powers.

Molly Foley-Healey of the Virginia-based Community Associations Institute, the national lobbying arm of private communities, called California's approach an anti-consumer bill masquerading as a benefit to consumers. She said homeowners will quit paying dues up to $2,500, forcing associations to punish other residents with higher dues to make up losses.

Nationally, CAI officials and homeowner activists are also watching, knowing California's reputation for change that often spreads to other states.

"If California succeeds in this, that's going to send shock waves across the country," says Marjorie Murray, lobbyist with the Congress of California Seniors, which sponsored the bill because many retirees live in private communities. Among its other supporters: the 36 million-member American Association of Retired People.