Defaults on homeowners association payments in California have risen sharply, according to this post The Wall Street Journal’s real estate blog today.

Reporter Nick Timiraos saw the increase as a potential indicator that foreclosures in the state will increase, too:

The homeowner association delinquency rate can serve as a leading indicator of sorts because homeowners usually stop paying dues before they stop paying their mortgage. The 90-day delinquency rate on dues for the 260 homeowner associations in California managed by Merit Property Management jumped to 5.3% in March from 2.8% last June. Delinquencies first spiked to 2.6% in December 2007 from 0.8% in March 2007.

(Timiraos and many other bloggers and reporters have recently pointed out that foreclosures in the state are set to rise sharply, due to another indicator — an increase in the number of notices of defaults that have been filed on homes that haven’t yet been repossessed and resold as foreclosures. That indicator’s known as “shadow inventory.”)

More from the WSJ:

Rising delinquencies for homeowners associations, which function like municipalities, are forcing cutbacks on services like landscaping, security and community services. About 60 million Americans live in one of 300,000 community associations.

I wrote a story a few months ago about what happens to HOAs when they are burdened by short sales and foreclosures. Here’s more from that story:

When banks foreclose on properties in default, they are required to pay back fees to the homeowners association. But a gap exists between when homeowners stop making payments and when the bank repossesses the house, enough time for several months’ fees to be lost. …

Real estate broker Joseph Galascione of ERA Metro Realty said he’s steered clients away from certain buildings because of looming special assessments — the onetime fees levied to make up for shortfalls — or underfunded reserves.

“It’s more common that we find HOAs that are OK — most of the HOAs are financially stable,” he said. “But there are enough out there that it warrants us spending more time researching the health of a building.”


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