Navigating the World of HOA
By Jacqueline Coffer
January 1, 2019
Jacqueline Coffer is Vice President of Operations with American Property Guard, a division of LERETA, Los Angeles. She joined APG in 2014 with more than 15 years of experience in operations, marketing and leadership.
The property tax industry is riddled with challenges, ranging from missing exemptions and orphaned accounts to the ever-changing list of special collection districts. When performed improperly, homeowner association data collection presents another obstacle that could cost loan servicers thousands of dollars in fines or even worse, the forfeiture of a property.
Fintech innovation noticeably reduces the difficulties posed by these issues. In fact, these pitfalls are avoidable with the proper use of automation, data extraction and quality assurance procedures, which are leveling the playing fields in the world of data collection. Soon, servicers claiming ignorance surrounding property tax and lien history, as well as, HOA status, will be unjustified.
We all know that HOAs require mandatory participation by homeowners in a designated area. There are deed restrictions and severe financial penalties including possible foreclosure for violations of the rules set by the HOA. In many states, the standard in the loan origination process for title companies is to provide the HOA report along with the corresponding property tax certificate. Obtaining the correct HOA information is crucial to effectively manage the tax certification of the associated properties.
While automation will help in the effort of securing HOA and other related data, what loan servicers need to understand is associations are not required to file electronically in any capacity. This requires a thorough understanding of how different HOAs operate and vigilance in communications to prevent costly fines.
Leave it to the Experts
Title companies may choose to streamline their workflow by contracting with a property tax certificate vendor who includes HOA reports. HOA reports come in several variations, but two of them are the most common. The basic HOA report consists of the contact information for the governing HOA. There are some instances where this may include a transfer and refinance fee list, but typically it is limited to the phone, email and physical address of the association. The full report that contains the aforementioned as well as a statement of account, which is necessary for foreclosure proration or lien payoffs. Fintech companies, such as tax certificate vendors, can bridge the gap between tax/HOA and title prep by offering a smooth, reliable, compliant and secure transfer of information.
As most title companies understand, the smaller HOAs tend to have less administrative time allotted for account communication. Typically, these smaller associations have a databank that may not be networked or easily accessible, if they have one at all. In some cases, account balances are logged manually in ledgers. Furthermore, the staffing is typically outsourced to a management company creating another line of disconnect between the title company and the data required for title closing. A task as simple as confirming the balance owed may take hours, or even days, for return correspondence. Even when the HOA is managed by an outside enterprise, many of them maintain homeowner records and property information on personal computers leaving personal information vulnerable in this age of data breaches.
How it All Started
The first HOA-style restrictions came from the first planned-development builder in Long Island, N.Y. named William Levitt. He built 17,000 homes in and around the community for veterans to take advantage of the low interest rates available through the Servicemen's Readjustment Bill in 1944, now known as the GI Bill, and the deeds regulated their home ownership behavior.
Since then, many factors drove the official creation of HOAs. In 1963, the Federal Housing Administration approved federal home mortgage insurance exclusively for condominiums or homes in subdivisions that had a qualifying homeowner association. This accelerated homebuilding in clusters maintained by associations. Additionally, federally-subsidized highways were built to make travel easier, and in turn, made land access easier. The increase in home ownership naturally created an increase in local government tax revenue, which encouraged the taxing entities to happily promote even more suburban development.
Today, a significant portion of HOAs are private, incorporated groups filed and regulated as non-profit corporations with the governing state. Their primary purpose is to regulate and enforce a specific set of covenants, conditions and restrictions to maintain a predetermined set of codes regarding property and home conditions. These codes were created according to a pooled set of expectations and opinions for the neighborhood directly. The expectations of how the HOA behaves are set forth in bylaws written and maintained by the association.
There are, however, other single-property associations that vary according to the membership types:
1) Property owners association, similar to HOA with mandatory membership, has deed restrictions and severe financial penalties for violations, including possible foreclosure;
2) Civic association, which has voluntary participation, defaults to county rules with harshest penalty being removal from the association;
3) Resident association with voluntary participation, majority voting block, and the harshest penalty is removal from the association; and
4) Neighborhood association, also voluntary, no formal rules, very relaxed.
The Foundation for Community Association Research published a fact book of national and state statistics for 2016. According to its findings, beginning in 1970, there were 10,000 communities with 700,000 units housing 2.1 million residents. In 2016, there were 342,000 communities with 26.3 million units housing 69 million residents. The Community Associations Institute estimates the number of U.S. community associations in 2017 was between 345,000 and 347,000. HOAs (homes) made up 51 to 55 percent, condominium communities made up 42 to 45 percent, and cooperatives made up 3 to 4 percent.
Important to Keep in Mind
HOA administrators juggle several factors including governance, membership, accounting, natural disasters, elections, lawsuits and the list goes on and on. HOAs have endured controversies surrounding the rights of the residents, voting representation and even complaints of reported board misconduct. HOA management companies are used for financial services, full management and/or on-site management to assist with the maintenance of the HOA and help resolve conflict and controversy. However, management companies encounter their own controversy with the implementation of the sometimes-elevated fees associated with refinance, ownership transfer, resale certificates, estoppel packages and other miscellaneous charges for title transfers. State regulation varies greatly and can create significant strain on data collection.
There is an increase in the number of HOA management companies developing cloud-based partnerships for data management. This will provide a series of benefits to HOA boards, including smooth real estate transactions and improved relationships for the ongoing services to long-term homeowners. When HOAs and/or their management companies become truly "paperless," the balance of information is more readily available for quicker closing. The tax certificate vendors that are technologically advanced can ensure that the service is going to make a title policy provider's life better, not just for the company, but for the individual by effectively managing HOA and property tax information.
By leveraging the expertise of a fully vetted property tax reporting company, the borrower, title company, and underwriter can all breathe a little easier when transacting a property that lies within the boundaries of a homeowner's association. Furthermore, the time and efficiencies gained by having this information provided in a complete, economic package is invaluable. Financial technology innovations are paving the way for effective title origination on multiple platforms. And in the end, the combined strengths of large data storage, security, accessibility, speed and accuracy have launched the title industry into the next generation of service.
(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA Insights welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at firstname.lastname@example.org; or Michael Tucker, editorial manager, at email@example.com.)