The worst housing crisis and economic crash since the Great Depression threaten to destroy thousands of shared-ownership communities, such as condominiums, cooperatives and homeownership associations, throughout the U.S. The danger is quiet, but staggering — more than 60,000,000 Americans live in SOCs, or almost 20% of the population.
Federal and state governments appear blissfully ignorant. It is critical that Congress take immediate action to prevent a collapse, beginning with tying bank bailouts to mandatory funding of assessments on units for which lenders hold mortgages, even while foreclosure proceedings are ongoing. In the short term, this may be unpleasant for the banks; but the long-term financial damage that will be caused by owning property in thousands of abandoned communities will be far greater.
Similarly, mortgage restructurings should mandate that unit owners bring their assessments current to be eligible. To help heal the damage, small-business loans should be made available to community associations suffering financial stress. And finally, laws must be passed that give associations the authority to deny nonessential services, such as cable television, Internet and telephone services, to nonpaying owners, along with the right to restrict access to recreational and social amenities.
SOCs rely on maintenance payments from owners to fund a host of municipal-type services, including landscape maintenance, security, infrastructure improvements and even social services. But many owners, hit hard by the financial crisis, have chosen not to make these maintenance payments, pushing the responsibility for this "bad debt" onto their neighbors. As a result, maintenance costs in some neighborhoods have doubled or even tripled, forcing a small, hard-hit cadre of well-meaning residents to cover the costs of operating an entire community.
This problem is being exponentially worsened by lax federal and state rules regulating bank foreclosures, which allow banks to sit on potential foreclosures, and even actual judgments, for years, during which time they have no obligation to help cover the costs of maintaining the community. And in many states, even once a foreclosure is finalized the bank is only responsible for paying a tiny fraction of past-due assessments, again requiring other, more responsible neighbors to write off the debt and cover the difference. Court efforts to compel banks to expedite their foreclosures have largely failed, with most courts claiming they have no power to make such requirements.
Like their larger municipal cousins, shared-ownership communities require funds to operate a host of essential life services, and these costs are often fixed, regardless of whether one or many owners choose not to pay their bill. As a result, SOCs are scrambling to find ways to compel owners to pay their share of the common expenses. In desperation, many have investigated extreme solutions such as cutting off delinquent owners' electricity or water, restricting guest access or preventing owners from parking in the community, though many of these potentially effective motivations are blocked by state laws and court rulings. In the worst situations, SOCs are resorting to filing bankruptcy, a totally unprecedented outcome for such associations.
The collapse of shared ownership communities, which currently provide a large percentage of common municipal services, will place a potentially insurmountable strain on the ability of state and local governments to provide such services to the millions of Americans who have been paying privately through their neighborhoods. As community associations dissolve, their empty and abandoned homes will become large blights on even higher-income municipalities, atrophying the property tax base and putting the government in further financial difficulty.