Delinquent assessments: RSF homeowners associations faring better than most

By Joe Tash


Homeowners associations around San Diego County and throughout the state are having a tough time maintaining services in the face of foreclosures and delinquent assessments, but associations in Rancho Santa Fe appear to be faring better than in other areas.

“They are struggling. Homeowners associations are struggling,” said Pete Smith, manager of the Rancho Santa Fe Association, which is the largest in Rancho Santa Fe with about 2,000 homes.

Through his membership in the California Association of Community Managers, a nonprofit industry group for homeowners association managers, Smith said he has heard anecdotally about numerous homeowners associations around the state facing delinquency rates as high as 90 percent after being hard-hit by foreclosures.

While the Rancho Santa Fe Association has seen a jump in its delinquency rates — some homeowners have not paid their association fees in more than three years — its delinquency rate is still below 2 percent, said Smith. Since 2006, lenders have foreclosed on 17 homes within the Association’s boundaries.

The Association’s fees average $2,800 per year per property, said Smith, and its total annual assessments are about $4.5 million.

The Association has also maintained its reserves, which are used to replace buildings and equipment at the end of their useful lives, at 100 percent, said Smith.

Ken Ayers, development manager of the Bridges, which has about 200 homes, said his association is also doing well in spite of the recession. The Bridges has seen only a couple of distressed sales and no increase in delinquent association fees.

A recent study of the Bridges homeowner association reserves showed healthy balances above the required levels, Ayers said.

“We currently don’t have an issue. We just don’t, and haven’t,” Ayers said.

A manager with Cielo Estates said her association is also doing fine, but declined to comment further.

Officials with the Starwood Development, developer of The Crosby, and Fairbanks Ranch, did not return messages left by the Rancho Santa Fe Review by presstime.

Elsewhere in San Diego County and California, however, the story is much different. Statewide, there are 46,000 homeowners associations, with about 6,300 in San Diego County, the second-highest number in California.

“This is my third economic downturn in this industry and it’s the worst,” said Karen Conlon, president and CEO of the California Association of Community Managers.

She said there appear to be two main reasons why more than 90 percent of homeowner associations in California are reporting increased delinquency rates in payments of association fees.

Many homeowners have over-extended themselves by taking equity out of their homes and racking up large credit-card bills. When families are unable to pay their bills, said Conlon, “typically what happens is the first thing they stop paying is their assessment for their HOA.”

The economic downturn has only made matters worse, causing people to lose their jobs and increasing foreclosure rates, she said.

Newer communities seem to be feeling the effects of the downturn most severely, said Conlon, such as Eastlake in Chula Vista, the Inland Empire in Riverside County, and communities in Sacramento, Stockton and Modesto.

One problem facing associations is that when a bank forecloses on a property, it is legally required to pay back taxes, Mello Roos assessments, and fees for water and sewer services, said Conlon. However, the banks are not required to pay delinquent homeowner association fees, so the only recourse for associations is to pursue the homeowners, who are unlikely to be able to pay off the debts.

Older, more established communities have tended to avoid the worst effects of the downturn, said Smith.

“We’re still very strong,” said Smith of the Rancho Santa Fe Association. However, the Association has lost assessments due to foreclosures for the first time in his 15-year tenure.

In those cases, said Smith, the Association is pursuing the homeowners to collect the delinquent fees. In Rancho Santa Fe, he said, homeowners who choose to give up their homes to foreclosure often have assets in addition to their homes.

Smith said it is important for prospective homebuyers to check out the financial condition of their HOA to make sure the organization is on a firm financial footing. Otherwise, they might face special assessments in the future to make up for delinquent fees.

Conlon said that homeowners associations should also be budgeting for bad debt to cover the payments of homeowners in default.