The Star Tribune has a piece titled: Whistleblower: Homeowners pick up the tab. The Strib just scratches the surface of this issue.

When someone buys into a townhome or condo development, they are becoming part owner of a nonprofit corporation that has ownership of common elements in the development and responsibilities for maintenance, insurance, utilities, etc for these common elements.

When one of the shareholders (homeowners) stops paying their mortgage, they typically stop paying the association dues as well.  When the bank comes along and forecloses on the property, in most cases in Minnesota the delinquent association dues are wiped out.  Those dues are now lost forever and can total $1000′s on each unit that is foreclosed.

What’s happening today is that many condominium and townhouse developments are seeing substantial foreclosure rates of 10% to 20% or even higher.  This has a huge impact on the association’s financial health as it hurts both the operating fund for daily costs but also the reserve fund that protects for future repairs/replacements.

The Board of Directors and their management company, if any, have a duty to run the association appropriately and in the face of these huge losses, associations are often using a combination of service cuts, association fee increases and special assessments.  After all, the association can’t just go bankrupt and walk away… it needs to function for the benefit of all of the shareholder owners.  What is done to keep it functioning and how severely it is done is very dependent on the size of the association, the foreclosure rate, the financial health of the association in the past, and the decisions made by the Board.

Most homeowners rarely if ever attend association meetings – in some associations it is very difficult to get even half the homeowners to the annual meeting and a handful to the meetings the rest of the year.  Typically homeowners don’t worry about their association until a decision is made that affects them and then they get interested real quick.  The problem is that by the time you have a problem, the decisions that were made affecting the problem are all in the past.  The time to affect the outcomes of your association is before and during the issues… not after!

Townhouses and condos are still great living arrangements for people looking for less maintenance than a single family home – just keep in mind that unless you are active in your association, you may be in for an unexpected and unwelcome surprise.