SOLD OUT?

Phoenix sees surge in HOA fore­clo­sures, auc­tions over un­paid fees

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Home­own­ers as­so­ci­a­tions — the en­forcers of neigh­bor­hood paint col­ors, hol­i­day dec­o­ra­tions and trash bins — are lead­ing the lat­est surge in Phoenix-area fore­clo­sures. ● HOAs are fore­clos­ing on a record num­ber of home­own­ers for as lit­tle as $1,200 in missed main­te­nance pay­ments, ac­cord­ing to an Ari­zona Repub­lic in­ves­ti­ga­tion. And home­own­ers who thought only their mort­gage lender could seize prop­erty are los­ing their houses at sher­iff’s auc­tions, some­times for just $100 more than they owe.

“It’s be­come a huge is­sue,” said Ari­zona Real Es­tate Com­mis­sioner Judy Lowe. “Most home­own­ers don’t un­der­stand the foreclosure process and don’t know their HOA can fore­close.”

Ari­zona al­lows an HOA to fore­close af­ter a year of missed pay­ments or a debt of $1,200. But when HOAs add le­gal fees and in­ter­est to late pay­ments, the debt can more than quadru­ple in a year.

Some home­own­ers fight­ing des­per­ately to keep their homes find HOA bal­ances of­ten don’t match amounts listed in court fil­ings, mak­ing it dif­fi­cult to learn how much they re­ally owe — and im­pos­si­ble to catch up.

Phoenix lawyer Jon Des­saules, who rep­re­sents home­own­ers fight­ing foreclosure, called the process “a cash cow for lawyers.”

“It’s an at­tor­ney… sell­ing a house in or­der to pay him­self,” he said.

Most states al­low HOAs to fore­close on home­own­ers who fall be­hind on monthly dues, al­though lenders usu­ally have first claim. In Florida, HOAs fore­close as of­ten as lenders. In Ne­vada, Colorado and more than a dozen other states, HOA claims can su­per­sede those of lenders.

Jan Berge­mann of Cy­ber Cit­i­zens for Jus­tice, a Florida ad­vo­cacy or­ga­ni­za­tion, said Florida HOAs also can fore­close for un­paid fines.

“Let’s say you have a roof that needs pres­sure-wash­ing,” Berge­mann said. “They can say, ‘If you don’t do it in 30 days, we will fine you $1,000.’ If you don’t pay the fine, the as­so­ci­a­tion can fore­close. It’s one of the big scams of the as­so­ci­a­tion.”

HOAs fore­clos­ing Val­ley-wide

In metro Phoenix, HOA fore­clo­sures jumped in 2015 as home val­ues re­bounded from the re­ces­sion.

Af­ford­able neigh­bor­hoods in south Phoenix and the West Val­ley have been the hard­est-hit, al­though HOAs also are fore­clos­ing in af­flu­ent com­mu­ni­ties such as the Scotts­dale Pin­na­cle con­dos, Sun City Grand and Prov­inces in Gil­bert.

Home­own­ers in var­i­ous stages are fight­ing back through the courts. Some chal­lenges suc­ceed; other home­own­ers for­feit years of eq­uity to the stroke of an auc­tion­eer’s gavel.

Cynthia Levine, 65, is fac­ing foreclosure on a Mari­copa home she bought in 2006. She owes at least $24,000 in back pay­ments, in­ter­est and le­gal fees to the Cob­ble­stone Farms HOA.

Levine de­clared bank­ruptcy days be­fore her home was to be auc­tioned off. In Ari­zona, a bank­ruptcy fil­ing can usu­ally stop col­lec­tion ef­forts by HOAs and lawyers un­til a judge ap­proves a re­or­ga­ni­za­tion plan.

Hugo Romero, 40, also sought bank­ruptcy pro­tec­tion af­ter he was threat­ened with foreclosure on the Queen Creek home he bought in 2007. He fell be­hind on his fees to the John­son Ranch HOA four years ago, af­ter los­ing a job and opt­ing to pay his mort­gage and feed his fam­ily first.

He owes $15,001: $7,600 for missed HOA main­te­nance pay­ments, and the re­main­der for le­gal fees, fines and in­ter­est pay­ments.

Marie De Sanna, 56, suc­cess­fully chal­lenged the le­gal fees the Ter­races at Tiburon Con­do­minium As­so­ci­a­tion tacked on to as­sess­ments for the Chan­dler condo she has owned for 30 years and now shares with her 90-year-old mom.

Af­ter gar­nish­ing her wages in 2015 and tak­ing a $6,000 lump pay­ment in 2016, the HOA filed to fore­close early this year. De Sanna fought back in court, and a judge re­duced the le­gal fees by two-thirds. Her HOA stopped foreclosure pro­ceed­ings.

Martha McNair, 64, lost her Gil­bert home in 2014, af­ter fall­ing be­hind on pay­ments to the Neely Com­mons Com­mu­nity As­so­ci­a­tion. She paid back more than $5,000 be­fore the HOA’s at­tor­neys sent her house to a sher­iff’s foreclosure auc­tion.

She said the HOA’s law firm would not give her a fi­nal bal­ance so she could set­tle up; her lawyer is chal­leng­ing the debt-col­lec­tion prac­tices in fed­eral court.

Hous­ing re­cov­ery leads to surge

Dur­ing the re­ces­sion, many Val­ley home­own­ers owed more to their lenders than their houses were worth. Be­cause of the neg­a­tive eq­uity, in­vestors had no in­cen­tive to buy fore­closed prop­er­ties, and the HOAs let the debts ride.

As home prices re­bounded, in­vestors came back to sher­iff’s auc­tions and HOAs be­gan to use foreclosure to col­lect debts more ag­gres­sively.

Since 2015, HOAs have started foreclosure ac­tions on more than 3,000 Phoenix-area home­own­ers, ac­cord­ing to The Repub­lic’s in­ves­ti­ga­tion. In 2016, a record 330 peo­ple lost their homes to HOA fore­clo­sures in Mari­copa County. This year, HOA fore­clo­sures are on pace to match the record.

Dur­ing the height of the Val­ley’s hous­ing crash in 2010, HOAs fore­closed on 63 home­own­ers. In 2002, a sta­ble hous­ing year be­fore the boom and bust, there were 58 HOA fore­clo­sures.

By com­par­i­son, Val­ley fore­clo­sures by lenders fell in 2016 to about 3,100, the low­est level in a decade. In the midst of the hous­ing crash, they topped 41,000 an­nu­ally.

City Prop­erty Man­age­ment Co. of Phoenix man­ages HOAs for 20 of the 50 Mari­copa County com­mu­ni­ties with the most foreclosure fil­ings, in­clud­ing the two lead­ers since 2015: Ri­ata West (36) and Camel­back Ranch (26).

Brian Lincks, pres­i­dent of City Prop­erty, said his com­pany uses foreclosure to co­erce balky home­own­ers to pay up.

“We don’t want their houses,” he said. “About 90 per­cent of our home­own­ers pay when we file to fore­close.”

Lincks said the com­pany prefers to work out a re­pay­ment sched­ule with home­own­ers. He crit­i­cized the le­gal ma­neu­vers some com­mu­nity man­agers and law firms use by lay­er­ing on fees and in­ter­est as the debt goes un­paid.

“To me, th­ese are like pay­day loans, and (the at­tor­neys) ought to be put out of busi­ness,” Lincks said.

Berge­mann de­scribed sim­i­lar in­stances of es­ca­lat­ing fees in Florida.

“You get a let­ter from an at­tor­ney,” he said. “The at­tor­ney writ­ing the let­ter charges $500. Now you owe the main­te­nance fee, the late fees, the at­tor­neys fees. The at­tor­ney drags you along, and your bill is up to $2,000. In the end, peo­ple can’t pay, be­cause they don’t have the money, and they fore­close on the house.”

9,000 Ari­zona HOAs

About half of Val­ley home­own­ers live in a com­mu­nity run by one of Ari­zona’s 9,000 HOAs.

The covenants, con­di­tions and re­stric­tions home­own­ers sign at clos­ing con­tain lan­guage ad­vis­ing that an HOA can col­lect dues us­ing any means nec­es­sary, in­clud­ing foreclosure. But in the flurry of read­ing loan and ti­tle doc­u­ments, home­own­ers can miss that pro­vi­sion.

Cynthia Levine said she had no idea her HOA could fore­close.

“I don’t think most peo­ple do know,” she said.

As­in­gle woman with no chil­dren, Levine shares her 1,800-square-foot home with Sammy, her 10-pound Pomera­nian.

Sammy runs the house, Levine jokes. But her name ap­pears on the foreclosure pa­per­work filed by Cob­ble­stone Farms.

At the time, she owed about $9,000 in back dues and an ad­di­tional $8,000 in at­tor­ney’s fees, court fees and late penal­ties. To­day, the debt stands around $24,000.

Levine be­gan miss­ing quar­terly HOA dues in 2008, dur­ing the re­ces­sion. “I know it’s my fault,” Levine said. In 2015, she be­gan pay­ing $500 a month to the HOA. At one point, Levine had the money to pay off what she owed to the as­so­ci­a­tion, but not enough to cover the le­gal costs. The HOA wouldn’t ac­cept par­tial pay­ment and filed for foreclosure in March 2016, she said.

Cob­ble­stone Farms HOA de­clined an in­ter­view, cit­ing Levine’s case still be­ing in lit­i­ga­tion. But in a state­ment, the as­so­ci­a­tion said non-pay­ing mem­bers put the HOA “at risk of not be­ing able to meet its fi­nan­cial obli­ga­tions.”

The state­ment also noted that the HOA board’s pref­er­ence is al­ways to set­tle out­side of court.

“The Board would not au­tho­rize foreclosure, un­less an owner’s ac­count was sub­stan­tially delin­quent and the board had de­ter­mined that all other al­ter­na­tives had been ex­hausted,” the state­ment said.

Mean­while, Levine re­mains in her home, wait­ing for the out­come of her bank­ruptcy case.

“The HOA is heart­less,” she said. “Lit­er­ally, I’m go­ing to be home­less. Sammy and I will be out on the street.”

Com­pli­cated le­gal bat­tles

In Ari­zona, an HOA can sue a home­owner to col­lect debts af­ter one missed pay­ment, al­though foreclosure can’t be­gin that early.

In Florida, HOAs can start charg­ing daily late fees on one missed pay­ment and fore­close as soon as a home­owner owes $1,000. In Cal­i­for­nia, HOAs can fore­close af­ter a home­owner is $1,800 be­hind on as­sess­ments, but that amount can’t in­clude late fees.

In most states, in­clud­ing Ari­zona, home­own­ers must be given a cur­rent tally of what they owe, in­clud­ing le­gal fees.

Mari­copa County court records show that Val­ley home­own­ers of­ten don’t re­spond to the no­tices, which are de­liv­ered by mail or in per­son.

The John­son Ranch HOA served Hugo Romero with a foreclosure no­tice early one morn­ing in his drive­way, as he re­turned home from his grave­yard shift as a prison guard.

“We missed a few pay­ments when I lost my (pre­vi­ous) job and tried to catch up, but couldn’t,” he said. “We would pay our HOA what we could, but then we started get­ting th­ese fees for lawyers and court fil­ings; that blew up what we owed.”

The quar­terly HOA as­sess­ments on Romero’s home were about $190, but in 2013, his HOA was also charg­ing him $400 to $800 a month. He un­der­stood the usual $15 to $20 late pay­ment fee but didn’t un­der­stand the big le­gal fees. The to­tals on the court fil­ings and the HOA bal­ance sheet dif­fered by about $1,000.

Romero wanted to keep the home for his wife and four chil­dren; he hired at­tor­ney Diane Drain to help him file for Chap­ter 13 bank­ruptcy.

“We waited too long to get help,” Romero said. “I didn’t un­der­stand what my HOA was charg­ing me and why they could fore­close.”

The John­son Ranch HOA did not re­turn phone calls seek­ing com­ment.

Drain said Ari­zona should re­quire home pur­chasers to sign a doc­u­ment “with big let­ters say­ing that their HOA can fore­close if they miss $1,200 in pay­ments. ... Most home­own­ers don’t un­der­stand what’s hap­pen­ing un­til they lose their house and all the money they in­vested in it.”

Fight­ing back

The na­tion’s 350,000 HOAs and com­mu­nity man­agers are largely un­reg­u­lated. Some states, but not Ari­zona, re­quire them to dis­close fi­nan­cial state­ments and per­son­nel in­for­ma­tion, but lit­tle else.

The Ari­zona De­part­ment of Real Es­tate can help home­own­ers with ba­sic HOA com­plaints, such as fines and dis­putes over paint col­ors, but can’t in­ter­vene in a foreclosure.

“We have seen some very sad cases of home­own­ers fac­ing foreclosure by their HOA, but by then, it’s too late for us to help them,” said Lowe, the com­mis­sioner.

The Ari­zona As­so­ci­a­tion of Com­mu­nity Man­agers says foreclosure should be a last re­sort.

“Foreclosure is not some­thing any of us are in­ter­ested in,” board Chair­woman Lori Per­ci­val said.

The board will re­voke cer­tifi­cates from com­mu­nity man­agers who abuse their pow­ers. But com­mu­nity man­agers don’t need an AACM cer­tifi­cate to op­er­ate. Only 60 per­cent of the state’s com­mu­nity man­agers be­long to the self-reg­u­lated group. With lit­tle over­sight, dis­tressed home­own­ers of­ten have just one op­tion: Find a good lawyer.

Marie De Sanna had been through two lawyers be­fore she found Jon Des­saules. The first was dis­barred a few days af­ter miss­ing a hear­ing in her case, for a va­ri­ety of ethics vi­o­la­tions, ac­cord­ing to the Ari­zona Bar As­so­ci­a­tion. The Repub­lic is not nam­ing the dis­barred lawyer, be­cause re­porters could not find him for com­ment.

An­other lawyer de­cided De Sanna’s case was too far along to get in­volved.

Af­ter los­ing a job in 2014, De Sanna fell be­hind by $1,200 on her HOA dues. When she re­turned to work, the HOA be­gan gar­nish­ing her wages by about 20 per­cent a month, she said. Even though she made a dozen pay­ments dur­ing 2015, her debt dou­bled, from about $3,750 to $8,000, due to le­gal fees.

“I would make a pay­ment, but they would still charge me a late pay­ment and le­gal fees,” she said. “I went to ar­bi­tra­tion. I pulled to­gether all the money I could and tried to set­tle with my HOA, but they turned me down over and over.”

In Jan­uary, her HOA filed for a judg­ment, the step be­fore sell­ing her home at a foreclosure auc­tion.

A few weeks be­fore the auc­tion was sched­uled, De Sanna hired Des­saules. He sued the HOA’s law firm in fed­eral court, chal­leng­ing its fees un­der the Fair Debt Col­lec­tion Prac­tices Act.

De Sanna also reached out to her neigh­bors. “I was fran­tic. I wrote a note to each HOA board mem­ber, telling them how much I wanted to pay what I owe and keep the house for my mom and me,” she said. “I de­liv­ered the notes, and a week later, my foreclosure auc­tion was can­celed.”

She doesn’t know if it was her notewrit­ing cam­paign or Des­saules’ le­gal

work that stopped the auc­tion. But she also won the sec­ond prong of her chal­lenge: In June, a judge found the $15,000 in le­gal fees charged by Corner­stone’s law firm “dis­pro­por­tion­ate” to the work done, and cut the amount to $5,000.

The HOA man­ager, Joe Latkowski of Corner­stone Prop­er­ties, de­clined to com­ment through an email. The as­so­ci­a­tion’s at­tor­ney, Beth Mulc­ahy, didn’t re­turn calls.

Now cur­rent on HOA dues, De Sanna be­gan pay­ing down the $5,000 in June.

“I want to pay I owe,” she said. “I just want it to be fair.”

Los­ing her home

Des­saules was the sec­ond lawyer to rep­re­sent Martha McNair, who lost her Gil­bert home in 2014. She agreed to let Des­saules dis­cuss her case.

McNair paid $225,000 for a 1,900square-foot Gil­bert house in 2004. She owed about $700 in main­te­nance fees the first time the Neely Com­mons Com­mu­nity As­so­ci­a­tion took her to court in 2009.

Over the next few years, she’d catch up and then fall be­hind as at­tor­neys fees in­creased her debt.

By June 2012, McNair owed about $6,500 in as­sess­ments and at­tor­neys fees. The HOA sought to fore­close.

But McNair and Neely Com­mons reached an agree­ment: She would pay the as­so­ci­a­tion $2,500 and then make $250 monthly pay­ments un­til the judg­ment was paid off, or for 12 months — whichever came first. In re­turn, the as­so­ci­a­tion would waive about $1,000 in fees, ac­cord­ing to court doc­u­ments.

McNair made the ini­tial $2,500 pay­ment and then sub­mit­ted an ad­di­tional $2,500 over 10 months, ac­cord­ing to court doc­u­ments.

She then made sev­eral at­tempts, by phone and by mail, to reach the as­so­ci­a­tion’s law firm, Maxwell & Mor­gan, to see how much — if any­thing — she still owed, ac­cord­ing to court doc­u­ments.

Un­able to con­firm her bal­ance with the at­tor­neys, McNair sent a $275.74 money or­der to the firm on Sept. 23, 2013, be­liev­ing that was all she owed. She had paid a to­tal of $5,275.74.

Thir­teen days later, she re­ceived an email from the firm, stat­ing that she owed an ad­di­tional $1,500 in at­tor­neys fees and costs. The same day, the as­so­ci­a­tion filed a no­tice of sale with the Mari­copa County Sher­iff’s Of­fice.

In the sher­iff’s no­tice, the as­so­ci­a­tion listed ad­di­tional at­tor­neys fees, as­sess­ments, late charges and court costs for a grand to­tal of $5,226 still due.

At the time, McNair was rep­re­sented by the lawyer who has been dis­barred. Six days be­fore her home was to be auc­tioned, he at­tempted to quash the sher­iff’s sale but failed.

McNair’s home was sold to an in­vestor for $75,000 on Jan. 9, 2014. The house was worth $200,000, and McNair owed less than $60,000 on her mort­gage.

In April 2014, Des­saules filed a fed­eral law­suit against Maxwell & Mor­gan, al­leg­ing the firm vi­o­lated the law by fail­ing to com­mu­ni­cate with McNair when she in­quired about her debt and by in­clud­ing un­awarded at­tor­neys fees in her bal­ance. “In her sit­u­a­tion, it sort of ex­em­pli­fies what’s wrong with the sys­tem,” Des­saules said.

In Novem­ber 2015, a U.S. Dis­trict Court judge ruled Maxwell & Mor­gan did not mis­lead McNair and that the fail­ure to re­spond to her bal­ance in­quiry did not con­sti­tute an un­fair col­lec­tion prac­tice. The judge also awarded Maxwell & Mor­gan $2,567 in court costs.

Neely Com­mons did not re­turn phone calls seek­ing com­ment. Maxwell & Mor­gan re­ferred all ques­tions to at­tor­ney Joshua Bolen, a mem­ber of the cen­tral Ari­zona chap­ter of the Com­mu­nity As­so­ci­a­tions In­sti­tute.

Bolen said he couldn’t com­ment on spe­cific cases but said gen­er­ally it would be un­fair to make the home­own­ers who pay their dues con­sis­tently also foot the le­gal bill for the one per­son who didn’t.

Des­saules has ap­pealed the Dis­trict Court de­ci­sion to the 9th U.S. Cir­cuit Court of Ap­peals in San Fran­cisco and ex­pects a rul­ing this year.

“It would frankly just be nice to have some clar­ity mov­ing for­ward,” Des­saules said.

Af­ter foreclosure

Home­own­ers could also ben­e­fit from more trans­parency in the sher­iff’s auc­tion.

“HOA auc­tions are very con­fus­ing. It’s hard to find out when and where they are,” said Des­saules. “And then they don’t al­ways go as sched­uled. It’s a dif­fi­cult process for a home­owner to try to fig­ure out.”

But real-es­tate bar­gain hunters know where and when to go. Sec­ond floor of the Mari­copa County Court­house. Thurs­days.

In April, an in­vestor snapped up a west Phoenix condo for $10,408, about $100 more than the home­owner owed the Vil­las Ca­sita Home­own­ers As­so­ci­a­tion. Nearby units were sell­ing for $140,000.

No one in­ter­viewed for this story could say whether the pre­vi­ous owner of the Villa Ca­sita condo would be no­ti­fied about any money left over, or what hap­pens to un­claimed funds in gen­eral.

The Villa Ca­sita HOA did not re­turn phone calls seek­ing com­ment.

Ari­zona home­own­ers have six months, or 30 days if the house is empty, to buy back, or re­deem, a fore­closed home.

But the re­demp­tion price is much steeper than pre-foreclosure. The home­owner has to cover the amount owed the HOA and its lawyers, plus an 8 per­cent re­turn for the in­vestor and a few hun­dred dol­lars in auc­tion pro­cess­ing fees.

“We get a lot of calls from home­own­ers try­ing to get their house back and want­ing the re­demp­tion amount,” said Rob Ben­ner, who han­dles the foreclosure auc­tions for the Mari­copa County Sher­iff’s Of­fice. “Few home­own­ers have been able to buy back their houses.”

The USA TO­DAY Net­work and NewsPress (Florida) re­porter Patricia Borns con­trib­uted to this ar­ti­cle.

Com­ing Mon­day: Who’s snap­ping up the fore­closed prop­er­ties.

TOM TIN­GLE/THE REPUB­LIC ALEXA HAYES/USA TO­DAY NET­WORK, AND GETTY IMAGES

JES­SICA BOEHM AND CATHER­INE REAGOR Cynthia Levine is fac­ing pos­si­ble foreclosure by her Mari­copa HOA. New fea­ture: Find the prici­est home sales in your neigh­bor­hood at streetscout.com.

MARK HENLE/THE REPUB­LIC

Marie De Sanna suc­cess­fully chal­lenged the fees she owed the HOA for her Chan­dler condo.

SEAN LO­GAN/THE REPUB­LIC

Bid­ders at­tend an HOA foreclosure auc­tion in Phoenix in mid-Au­gust. Of­ten, prop­er­ties at th­ese auc­tions sell for a frac­tion of what they’re worth.

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