HOAs Suing Banks to Rush Foreclosures
Underscoring the depth and scope of the current foreclosure crisis in the US, various homeowner associations have begun filing lawsuits against banks to reclaim properties from delinquent homeowners, according to a report from Bloomberg. The problem is surfacing across the country, and is particularly prevalent in states with high foreclosure rates like Nevada, California and Florida.
The issue stems from banks' unwillingness to foreclose on properties. As most banks already have an abundant supply of repossessed homes they can't sell, they are not anxious to seize more, as it will make them liable for maintenance, taxes, and even HOA fees. The problem that the HOAs are having is that these homeowners are generally not paying the dues to the association, since they know they will eventually lose the home. So they have taken to filing litigation to force the banks to foreclose on the properties.
An estimated 60 million Americans, or one in five homeowners, live in communities governed by HOAs. The Bloomberg report provides further evidence of just how deeply the foreclosure crisis has affected the US housing market. In July, the number of foreclosures initiated across the country reached a 44-month low. But that figure has less to do with the financial health of homeowners than with the immense backlog of foreclosures banks are dealing with. In many states, insiders say it will take years or even decades for banks to catch up on foreclosures.
Furthermore, the issue was made worse by last year's robo-signing scandal, where many lenders routinely signed off on hundreds of foreclosure documents a day without properly verifying their contents. The scandal broke last fall, and has forced banks to go back and re-evaluate documents in thousands of foreclosures, further slowing down the whole process. And with all these distressed properties on the market, prices of non-distressed homes are being affected, hindering the overall recovery.
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