BLOG VIEW: With one out of every five properties tied to a homeowners association (HOA), it is critical that mortgage servicers prepare for the obstacles that HOAs can present. What follows are the three top challenges HOAs can create for servicers and solutions for countering them.
Challenge 1: Locating And Identifying The HOA
Oftentimes, servicers experience difficulty identifying the corresponding HOA for properties in their portfolios, and worse, they do not always know when a borrower has a delinquent HOA account. This can result in major delays as servicers scramble to find and communicate with HOAs, which further results in unnecessary accumulated fees.
To avoid this domino effect – which could potentially balloon into extreme HOA risk against the lien – servicers must perform thorough investigative work. As many have found, it is not always as easy as contacting a professional Realtor.
Servicers can start by contacting neighbors of the property. Also, servicers should review the deed and find out if the subdivision references an HOA. If the subdivision's name sounds like that of a community, such as Planned Unit Development, that is a good clue it is part of an HOA.
But to make matters even more difficult, sometimes there could be a number of HOAs within the property's area and servicers will have to narrow down their search. For instance, an association could cover exclusively the lakefront area of a particular property and not the rest of it.
Because it can require exhaustive measures to identify the appropriate HOA, some servicers choose to outsource this function to a service provider. If doing so, it is best for servicers to select a firm with a national footprint that monitors these associations.
(In fact, this monitoring should continue for the entire life of the loan, as issues can always arise at any stage that a mortgage is in force.)
Challenge 2: The HOA Is Uncooperative
Not every HOA is easy to work with. Sometimes they delay the process for servicers by not returning phone calls. The best way to handle an uncooperative HOA is to establish and prove all contact attempts made to multiple sources. First, email the HOA and follow with a phone call and voicemail. If days go by without hearing back, send a certified letter with a returned receipt. Many states have a statute that requires the certified mail's receiver to respond within five to 10 business days. A few dollars spent on certified mail goes a long way in this instance. Record and log all emails sent and calls made, particularly those made to a collection agency, if it comes to that. Collection agencies are notorious for holding up the process, causing servicers to lose additional time and money.
Challenge 3: The HOA Is Charging Unreasonable Fees
If a servicer receives an assessment from an HOA that seems exceedingly high, the servicer can typically negotiate the terms down by pointing to the limitations as established under state statute. Servicers are sometimes unaware of these statutes, and oftentimes, the limits these statutes offer can work in the servicers' favor.
For instance, some states impose limitations that servicers cannot be charged more than 18% per year, or more than $25 per month, in late fees. Servicers should educate themselves on these state guidelines. In certain instances, this knowledge can save thousands of dollars.
Service providers with comprehensive HOA services are conversant with every state's statute and can help servicers negotiate down to what is reasonable.
With the approximately 350,000 HOAs in the U.S. covering more than 25 million households, servicers cannot afford to ignore them. But that means servicers may encounter unseen challenges beyond what they typically encounter with traditional properties.
These challenges result in additional time and resources, so servicers should look into partnerships with providers that offer a full-service HOA offering designed to protect them from these hurdles. These partners serve to centralize the HOA contact or validation process, establish best practices for information retrieval from HOA companies, and understand and comply with state statues when negotiating HOA dues and fees.
Ann Song is vice president of asset management at LRES, a national appraisal management company and REO manager offering property valuations, asset management and technology solutions for mortgage bankers, lenders, servicers, credit unions and private investors.
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