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HOAs mauled by economic meltdown

Count homeowner associations, grassroots organizations that oversee community functions, among the groups that have been badly mauled by the economic meltdown, according to residents, community leaders and industry experts.

Displaced families have been the most visible victims of the waves of foreclosure rippling through the Inland Empire and the rest of the state and nation.

Behind them come HOAs – which typically impose and enforce neighborhood rules and regulations – as hidden casualties of the ongoing economic downturn.

“It’s tough,” said Andrew Schlegel, vice president of finance for Merit, which provides management services to associations that represent about 140,000 homes throughout the western states.

“I hate to say it, but it’s particularly acute in the Inland Empire, simply because that’s where all the development was in 2004, ’05 and ’06,” he said. “You look around there and it’s very tough.”

Foreclosures – which now average one in 10 households across the nation – siphon off fees that associations use to irrigate landscaped areas, maintain clubhouses, clean pools, oversee architectural standards and provide other services.

Without that income, associations face the hard choice of cutting services or increasing assessments owed by cash-strapped homeowners.

David Scannell of Menifee is among the many local residents caught in that squeeze.

Scannell and other residents of the 1,200-home Oasis subdivision were recently notified of a dues increase spurred by rising foreclosure rates.

A notice sent to homeowners in the tract that flanks part of Menifee Lakes Country Club told of a $20,000 dip in association revenues last year. That budget deficit is expected to rise to about $50,000 this year, according to the notice.

The association maintains its own roads and operates street lights, a community center, three entry gates and other amenities.

As a result, a one-time fee increase of $60 will be assessed on top of residents’ association dues that currently total about $175 a month.

The increase comes after several cost-cutting measures, which include lowering the temperature of a heated pool, have been implemented.

Scannell said he can afford the new fee, but some residents with less leeway in their household budgets will be stretched.

“For them, it’s a burden,” Scannell said.

The notice did not give foreclosure rates in that five-year-old homeowner association. As a result, it is hard to gauge tell the extent of the downturn there because the association also maintains residents’ front yards, he said.

But foreclosures – as evidenced by dead lawns and water-starved shrubs – are easily spotted elsewhere in the region.

“There are an unbelievable amount of foreclosures, and housing prices have really dropped,” said Suzanne Bolton, Merit’s business unit leader for the Inland Empire. “It’s just the saddest thing.”

Bolton said the current downturn is the worst in her 11-year career in the homeowner association industry.

She and other Merit representatives say it’s hard for associations to simply slice services and amenities during tough times.

Doing so can damage an association’s “curb appeal,” thus making it harder to complete against other communities for scarce home buyers who are in the market today.

Nearly 35 people representing 14 homeowner associations attended a Merit symposium at a Temecula-area winery in November that focused on housing foreclosures and assessment delinquencies.

Participants came from Temecula, Murrieta, Moreno Valley, Ontario, Rancho Cucamonga and Irvine.

At least six other workshops are planned throughout the state this year, company officials said.

Merit represents 48 homeowner associations in the Inland Empire. Some of the larger groups include the Sun City core area, Moreno Valley Ranch and Paloma Del Sol and Paseo Del Sol in Temecula.

The sessions focus on steps association boards can take to lessen the impact of housing foreclosures and how to stretch their increasingly tight budgets.

Those strategies include pressing banks to foreclose quickly on delinquent homeowners.

Putting homes into a bank’s hands can force the lending institution to begin paying overdue homeowner association fees, according to Merit and legal experts.

Many banks are slow to foreclose on homeowners because they want to delay paying those fees and keep their debt portfolios within manageable limits, said Peter E. Racobs, a partner in a regional law firm that represents Canyon Lake and about 1,000 other homeowner associations.

He also said many homeowner associations must grapple with buyers who have failed to make a single dues payment since they moved in.

“They go delinquent right out of the box,” he said. “It’s like the worst of both worlds out there.”

Because it is a large, older association, Paloma Del Sol in Temecula has weathered the downturn better than many other groups, said Gary Connors, the board president there.

Although many residents of the 1,976-home tract have seen their property values plummet in recent months, most have lived there for years and can likely ride out the hard times, he said.

“We’re facing the same challenges as everybody else,” said Connors, an 11-year resident of the subdivision who works on Camp Pendleton. “We’re trying to maintain our association as best we can.”

The association – which oversees five recreation centers and pools, 112 acres of trails and common areas, basketball and tennis courts and other amenities – has been able to limit its annual dues increases by paring some services and keeping a lid on operating costs, he said.

“We budget very stringently and do the best we can,” he said. “It seems to be working. We’re not in the shape that some of these other associations are.”

If the economy continues to tighten, Connors said he expects the association board will seek new bids for some of its contract work or press existing companies to lower their service prices.

“Everybody needs business these days,” he said.

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