Transfer fees, HOA management and property values

This is a letter I used to reply to a friend's question about her HOA's practices:

Thanks for your inquiry about HOA management practices, standards in the community and how that affects HOA members. I'm glad to share a cohesive viewpoint with you; it is rare that opportunity presents itself.

HOA fees relating to real estate transactions are a common and expected part of the process. HOAs come either large (self-managed) or small (third party management,) and the issues seem to track with HOA organizations whether they are self-managed or not.

Most HOA fees are set out in the deed restrictions, and there are general standards.

In general, about $50 is routine for a transfer certificate - an administrative fee to modify the HOA's records that someone different has taken title to the property.

Also, in general, around $75 to $125 is routine for an HOA certificate on the FNMA form, as we experienced with your recent refinance transaction. This data is kept up to date by the HOA or its management company as a matter of course; if your community isn't FNMA/FHA approved, no one can get financed in your community. Plainly spoken, the HOA must keep this information up to date, every time it's request, it's on the FNMA/FHA approved form, and the fee that is charged for providing this commonly collected and updated information is preposterous. However, everyone does it, and it is expected.

An HOA can dramatically affect the viability of a community with its management style and fee structure. By taking an unreasonable time to complete a transfer or certificate request, an HOA manager can actually block a sale or refinance from being completed. By charging an unreasonable fee, an HOA manager can create a negative impression in the minds of local realtors, who will then consciously or unconsciously steer clients away from properties offered in a given community. There are some communities I've encountered in my fifteen years in the business, where a given title company or realtor won't do business with a property offered in that community so as to avoid the difficulty and delay presented by the HOA management.

Specifically in response to your question about the performance and response of your HOA's management company with respect to your recent refinance transaction, I have several opinions:

First, the time it took your HOA manager to complete their first reply to the request for an HOA condo certificate was unreasonable. Unreasonable speaks to the delay in your transaction - it took seven days from the initial request to the first request for fee payment by your HOA manager. Following fee payment, it took another five days to deliver the completed HOA certificate - more than two calendar weeks from the initial request.

When a condo certificate is requested, the loan is ready to go into underwriting. Loans in underwriting that linger tend to fall apart. Loans submitted with everything packaged and ready pop out of the system in hours, ready for the next step.

In my mind, a responsible HOA manager, focusing on what's best for the HOA's clients - the community owners - would prepare a blanket condo certificate and make it generally available on the community's website, replacing it only when the annual cycle came up, or when the data was significantly changed. That certificate could be offered without charge.

HOA insurance was referred out to the community's insurance agent, who was quick, responsive and effective. The turnaround for the HOA FNMA certificate should have taken no more time than did the agent's response time with the insurance certificate - those transactions are the REASON that the HOA manager is in place.

An HOA that is run effectively, with uniform enforcement of regulations, a clean and neat presentation of the community, a courteous, swift and reasonable response for routine transactions, can benefit homeowners in the community by supporting value appreciation. Specifically, an HOA that is well run and customer friendly will create an atmosphere that promotes Realtor preference and promotes members of the community telling their friends and co-workers that their community is a desirable place to live. The community in which I live enjoys such a reputation, and nearly forty years after its creation, inventory in this community is in good balance, sales occur quickly, and people are pleased with their experience.

An HOA management that is populated with people who believe that it is their job to be indifferent to execution of their primary function, and who focus instead on aggressive and subjective enforcement of HOA regulations create the opposite - a community in which members are disconnected, in which they are not proud and do not speak highly of, and which Realtors and the surrounding community begin to avoid. This is the Gladys Kravitz management style, in which the HOA structure is used to harass and punish neighbors for perceived or subjective infractions, and which subtly and negatively affects the community's value.

In the case of your HOA, owners there are in a refinance market where there is opportunity for homeowners to reap the substantial benefits of reducing both rate and term, saving them tens of thousands in interest payments and developing equity far more quickly. By dragging out the certificate process, and by charging each homeowner $175 for transfer and certificate "costs," the HOA management inhibits this transaction cycle. In fact, the HOA board should promote such a refinance transaction cycle, as a community that is populated by homeowners with more substantial equity has a much greater probability of thriving in a declining market. Foreclosures in the community are reduced or eliminated, and homeowners have far more flexibility to sell or take equity to manage their financial situation.

The HOA could, in fact, promote a refinance cycle by offering residents a copy of the certificate for free (since you've just paid for yours, it's already been done. The certificate would only need to be changed if there was an ownership change, or a change in the financial condition of the HOA) so, for the next forty-five days or so, the HOA could promote increased equity and viability of the community without cost to itself.

Someone in your community with a 7% fixed rate could save about $1500 a year or, could refinance to a fifteen year term, and keep their payment about the same, but increase equity at more than 100% faster than the thirty year rate would allow.

Never before has there been a cohesive, big picture sense that Realtors, HOAs, mortgage lenders and homeowners can actually manage the viability of their communities by simple, reasonable cooperation and a focus on that big picture. I can't say that it will happen now, but there is an opening for that conversation I've never before experienced.

I hope that this answer has helped you as you prepare for your board meeting Monday night.

Thank you again for inviting my thoughts on this issue.

Don't you just love the smell of regulatory napalm in the morning?

Read this terrific article about the developing re-regulatory "storm" in Salon magazine online.

Shopping in the Bargain Basement

Reposted from Hullabaloo

Fasten Your Seat Belts

by digby

Tomorrow should be an interesting day on Wall Street. JP Morgan just bought Bear Sterns for less than the price of the office building it's housed in and then the Fed cut interest rates another quarter of a point to try to cushion the blow.


The Fed approved the financing arrangement announced by JPMorgan Chase & Co. and Bear Stearns Cos. JPMorgan separately agreed to buy Bear Stearns for about $2 a share.

Fed Chairman Ben S. Bernanke is stepping up efforts to keep strains in financial markets from spiraling into a full-blown meltdown. Last week the central bank agreed to emergency loans to a non-bank, Bear Stearns, for the first time since the 1960s. Fed officials also announced a program to swap $200 billion in Treasuries for debt including mortgage-backed securities.

The Fed lowered the discount rate to 3.25 percent from 3.5 percent, narrowing the spread with the federal funds rate to a quarter point from a half point. From tomorrow, primary dealers will be able to borrow at the rate under a new lending facility, to be in place for at least six months, the Fed said.

The actions are ``designed to bolster market liquidity and promote orderly market functioning,'' the Fed said. ``Liquid, well-functioning markets are essential for the promotion of economic growth.''

Investors expect the Fed to lower its benchmark rate by as much as a full percentage point, to 2 percent, when policy makers meet March 18. That would exceed the 0.75-point emergency reduction on Jan. 22, which is the largest cut since the overnight interbank lending rate became the main tool of monetary policy about two decades ago.


Paul Krugman wrote on Friday, before these actions of today:




I’m more concerned that despite the extraordinary scale of Mr. Bernanke’s action — to my knowledge, no advanced-country’s central bank has ever exposed itself to this much market risk — the Fed still won’t manage to get a grip on the economy...

I’m sure that Mr. Bernanke and his colleagues are frantically considering other actions that they can take, but there’s only so much the Fed — whose resources are limited, and whose mandate doesn’t extend to rescuing the whole financial system — can do when faced with what looks increasingly like one of history’s great financial crises.

The next steps will be up to the politicians.

I used to think that the major issues facing the next president would be how to get out of Iraq and what to do about health care. At this point, however, I suspect that the biggest problem for the next administration will be figuring out which parts of the financial system to bail out, how to pay the cleanup bills and how to explain what it’s doing to an angry public.


Like I said. Buckle up.