Condo and homeowners associations have struggled for years to collect dues from all the property owners in their communities, but when the economy turned sour and the housing market declined, delinquency rates skyrocketed.
After the Federal Housing Administration tightened its financing procedures for condo owner associations in 2009, high delinquency rates — the percentage of property owners in a community who are 30 days or more behind on their dues —became even more of a problem.
Unlike with homeowners associations, COAs own the ground and the buildings in which units are located, and thus are required to have an FHA certification to ensure the community is in good fiscal health so that people who want to buy a unit can get FHA financing. Condo communities with a delinquency rate of more than 15 percent, are ineligible for a FHA certification.
"It's not just the association that's not getting their money, it's anybody who wants to sell their home," said Joan Michaelson, COA president for the 92-unit Heatherstone townhouse community in Columbia. "It's a big problem, and I know we're not the only association that has that problem."
Heatherstone is just one of 75 COAs — 57 percent of 131 total COAs — in Howard County that have expired FHA certifications, according to data provided by the County Council. The problem is most pervasive in council member Calvin Ball's District 2, where 72 percent, or 18 of 25 COAs have expired certifications.
Ball, a Columbia Democrat, plans to introduce legislation Thursday, March 29 that aims to help condo communities reduce delinquency rates and restore their FHA certifications.
Howard County Association of Realtors President David Vane said FHA financing is a draw for first-time homeowners — many of whom buy condos or town homes in COA communities — because it allows buyers to spend less on down payments.
FHA home loans typically come with down payments around 3.5 percent — significantly less than conventional bank-financed mortgages, which can require down payments of up to 20 percent. FHA also provides mortgage insurance so that buyers seeking loans through other lenders can also get smaller down payments.
"We're seeing lots of condominiums that are not approved for FHA financing, which trickles down to a lot of conventional financing, and it's because of the delinquency rate of the condo dues," Vane said.
"It's a problem for the seller because the buyer of the property can't get a loan."
Bill targets rental units
Ball has prefiled a bill, co-sponsored by the council's other three Democrats Mary Kay Sigaty, Jen Terrasa and Courtney Watson, that would require anyone applying for a rental housing license in the county to prove they are up to date on their COA or HOA dues. It would also allow the county Department of License, Inspections and Permits to suspend or revoke a rental license if a property owner is more than 30 days late on their dues.
"This legislation will empower condo and homeowner associations in driving down delinquency rates, which are a growing concern because they directly impact property values and the ability for people to sell their homes," Ball said.
Much to the surprise of owners trying to sell, a community not having an FHA certification, Vane said, "basically takes a development ... off the market with the exception of cash buyers and investors."
Because property assessments are tied to neighboring sales, Watson, an Ellicott City Democrat, said a few units being sold at a low price to an investor can affect the condo values in the entire community.
"It's like a domino effect," she said.
For example, units in the Canterbury Riding condominium community of North Laurel sold for $200,000 in August of 2010 but now are being offered for $80,000, according to council research.
"Property values are cut sometimes by 40 or 50 percent," Ball said, noting the declines have a negative impact on the county's property tax revenue.
Ball acknowledged that his bill "doesn't solve the whole issue" because not everyone who is not paying their condo dues is renting out their unit. However, he said, it could help some communities reduce delinquency rates enough to qualify for an FHA certification.
"My guess is it's a very small portion," Vane said of how much of the delinquency rate issue is created by people who rent out their property. He said believes a higher proportion of unpaid dues comes from foreclosed properties owned by banks and owners whose properties are on their way to foreclosure or short sale.
Still, Vane commended the council for trying to help solve what is largely a federal a problem because of the FHA financing guidelines.
Public hearing set
Ball's bill will be formally introduced at the council's March 29 legislative session. A public hearing on the bill is scheduled for April 16 and a vote scheduled for May 7. All meetings are held at 7:30 p.m. at the George Howard building in Ellicott City.
Because the bill is being sponsored by four of the five council members, it already has enough support to pass.
"The legislation is meant to be one tool to help address the emerging problem of how FHA regulations are affecting condominium associations," Watson said.
She said the council has reached out to federal lawmakers, who have the ability to take more action, including Sen. Ben Cardin.
Responding to a letter from Watson, Cardin, a Democrat, wrote: "I understand the Department of Housing & Urban Development's (HUD) need to implement prudent changes to lending criteria to reduce taxpayer risk associated with the Mutual Mortgage Insurance Fund. But the regulations shouldn't exclude sound condominium developments and credit-worthy buyers from the benefits of FHA financing.
"Accordingly, I have written a letter to HUD Secretary Shaun Donovan urging him to be flexible and pragmatic with regard to the FHA condominium mortgage approval process."
Sigaty, a Columbia Democrat, said the council's bill does more than help COAs who are struggling to get FHA certifications; it also helps both COAs and HOAs collect dues to pay for shared community resources, such as swimming pools, lawn care, sidewalk paving, etc.
"If you start having people not paying (dues) ... it affects the health of the communities," she said.
Josh Friedman, a Heatherstone resident and member of the Long Reach Village Board, said delinquency rates are exacerbated by people who convert their properties into rental units and then neglect to pay their dues.
"These are dues that are used for a lot of essential services in condo/town home communities," he said. "They're used for trash removal, snow removal, common areas."
Friedman said the council's proposal is "terrific" because landlords will have to meet their financial obligations to the community, as well as to their tenants, who rely on the owner to pay their dues so they can use the community's amenities, such as swimming pools.