Dues Blues

The housing slump is taking a toll on homeowner associations.
by | August 31, 2008

The desert sun can be tough on the gardens and lawns of Avondale, Arizona, but this year looks particularly grim for the landscaping. Foreclosures are rippling through this suburban Phoenix boomtown, and the homeowner associations to which most of Avondale's 70,000 residents belong are having a hard time keeping up with their water bills. Gina Ramos Montes, Avondale's neighborhood and family services director, worries that by this fall, the city may be forced to cut off water to some associations. "That means the grass and plants will die," she says. "Then what do we have?"

Wilting plants are just the beginning of Avondale's troubles. All the vacant homes and weedy unsold lots in these neighborhoods don't just look bad. They're also a fire hazard: Dry vegetation is perfect tinder for the sort of small brush blazes that can easily whip into mega fires. Meanwhile, Avondale officials are concerned that abandoned backyard pools will become breeding grounds for mosquitoes and spread the harmful West Nile virus.

Under normal circumstances, Avondale could rely on its homeowner associations to take care of their own problems. The associations collect dues from owners and handle most of the day-to-day services such as trash collection and street maintenance. But these days aren't so normal. Owing partly to the mortgage crisis and partly to the weak economy, financially pinched homeowners are reneging on their association dues at unprecedented rates. In some of Avondale's communities, the delinquency rate is as high as 40 percent.

A similar story is playing out in other parts of the country, particularly in some of the newest Sun Belt suburbs where nearly all homes are part of private communities and where foreclosures have been hitting hard. As associations come up short on cash, they're cutting back on watering lawns and delaying maintenance on amenities such as tennis courts and clubhouses. In the worst cases, associations are staring insolvency in the face.

No associations have gone bankrupt as yet. Still, local governments are watching the situation closely. The big fear is that if associations begin to falter, localities will be called upon to bail them out. In Orange County, Florida, which encompasses Orlando and its surroundings, a number of private associations are struggling. They're facing problems with vacant houses, vandalism and even abandoned pets left behind by homeowners aggrieved by the foreclosure process. Now, local officials have begun studying the county's options should any of the homeowner associations go belly-up. "That is the extreme case we are worried about," says Lavon Williams, manager of the county's neighborhood services division. "It's a big concern of ours."

Micro Governments

The rise of homeowner associations in America is a relatively recent phenomenon. In the mid 1960s, there were fewer than 500 such organizations. Today, there are some 300,000. Each is a sort of private government, with its own board and the power to raise funds to pay for amenities and capital improvements. Although associations often are lampooned for imposing persnickety rules on matters such as house colors and mailbox styles, the model has become a popular way for developments to protect property values and offer niceties such as elaborate landscaping and recreation facilities. Between 1980 and 2000, half of all new housing in the United States was part of a private association; about one in five Americans now lives in an association community.

According to Robert Nelson, the author of "Private Neighborhoods and the Transformation of Local Government," the rise of associations is creating a new division of municipal labor. That's especially true in states with lots of associations, such as Arizona, California, Florida and Nevada. The associations take responsibility for micro-level services such as recycling or having lifeguards on duty at the community pool. Municipalities, meanwhile, focus on providing the more comprehensive services, such as schools, public health and running water or sewer systems. By and large, local governments have embraced this arrangement. The reason is twofold: By shifting the burden of providing some services to neighborhoods themselves, municipal leaders are able to cut costs. At the same time, residents of association communities pay the same property taxes as anyone else. It's such an appealing arrangement from the perspective of local governments that some cities, such as Chandler, Arizona, now require all new housing developments to be organized as homeowner associations.

Some experts are critical of this trend. Evan McKenzie is one of them. McKenzie, author of "Privatopia: Homeowner Associations and the Rise of Residential Private Government," believes that outsourcing government functions to the neighborhood level can have unforeseen consequences. Association boards are typically run by untrained volunteers, who are notorious for understocking reserve funds, he says. Weak reserves leave associations unprepared to keep up with maintenance as infrastructure ages -- a growing problem as the first wave of these communities reaches middle age. The situation also leaves associations vulnerable to the sort of revenue swings some are seeing now. "There is a tremendous over-reliance on the private resources of homeowners," McKenzie says.

Should cities and counties find themselves rescuing homeowner associations, it would mark a new day in this relationship between local governments and their smaller, private partners. Observers such as Darin Fisher are beginning to think there may be no other way. As a partner in Vision Communities Management, Fisher oversees several homeowner associations in Arizona. He worries that without substantial outside support, some association-run neighborhoods are "in danger of becoming blighted communities." At the same time, however, he doubts that local governments, currently facing revenue worries of their own, can render that support. Some of the towns Fisher works in don't have the resources to do basics such as removing graffiti from public spaces, he says. If maintenance of homeowner association communities were to become the responsibility of local governments, "I don't know how they can possibly maintain the infrastructure."

Fall Cleanup

In Avondale, officials don't want the situation to reach that point. They're taking steps to help sustain beleaguered neighborhoods and keep their homeowner associations afloat.

An immediate concern has been limiting the damage to foreclosed homes caused by disgruntled former owners. In recent months, there's been an increase in the number of cases where people leaving their homes take everything from light fixtures to door handles on their way out. To discourage this behavior, city officials began asking associations to institute a "cash for keys" program that rewards owners who turn in the keys to their intact homes with a small monetary payment.

In other instances, the city has been compelled to take action because of concerns for public safety. To mitigate the risk of brush fires, Avondale began offering neighborhoods money to remove tall weeds overrunning the yards of vacant homes and unsold lots. In instances when communities chose not to clean the properties themselves and the situation is "truly a hazard," Montes says, "the city will go in and eat the costs" by sending its own crews in to cut the weeds. And to handle the problem of mosquitoes breeding in stagnant swimming pools, Avondale partnered with Maricopa County's insect control unit to devise a strategy. Avondale officials are stocking untended swimming pools with mosquito-eating fish and chemical tablets to eradicate the bug's larvae.

Central to Avondale's efforts, however, is a focus on preventing problems from billowing into full-blown crises. The city puts on free seminars for association board members, on topics ranging from how to collect assessments to how to enforce codes. The hope, says Montes, is to give "homeowner associations access to all the education and training we can provide. We can weather this storm if we can just help the neighborhoods sustain themselves."


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