Homeowners Association Forecloses on Vet for $340

Sometimes homeowners associations get a bad rap. As nettlesome as some of their bylaws may be, the organizations, after all, never force anyone to live in their neighborhoods. If someone chooses to live within an HOA community, apologists say, they should be prepared to abide by its rules and pay the penalties if they don't.

But there are times when HOAs seem draconian in enforcing their statutes -- situations in which, to many, the punishment doesn't seem to fit the crime.

In the case of Sherman McCray, as described in the Orlando Sentinel, an 81-year-old Korean War vet stands to lose his home for essentially not paying $338.91 in HOA fees.

"I don't understand it. I never seen a situation like this in all my life," McCray (pictured above in his house) told the Florida newspaper. "Nobody didn't give me this house. I bought it with blood, sweat and tears."

On Jan. 3, a judge ordered that McCray's home, which he owns in full, be sold because the vet had failed to pay the Vistas Homeowner Association of Clermont, Fla., an assessment fee in 2010. At the time of the judge's ruling, the amount that McCray owed had snowballed into $4,272 in late fees, interest and legal costs.

A Questionable Incentive

If the HOA sells McCray's home, it will recover its assessment fee, interest and late fees that accrued on the original debt, and all the expenses it paid to foreclose on McCray, says Robert Freedman, a real estate attorney for the law firm Carlton Fields. The bulk of those expenses are attorneys fees, which are paid to the lawyers who advanced the home toward foreclosure.

Search Homes for Sale Browse through photos of millions of home listings or search foreclosure listings McCray's predicament sheds light on a financial incentive to lawyers in states that allow HOAs to seize residents' home. In such states, there's potentially more profit for lawyers in advising HOAs to foreclose on residents, rather than trying to negotiate a payment plan. And since the fees are essentially coming out of the residents' pockets -- not the HOAs' -- through the sale of the home, there's possibly less oversight.

If the resident owns his home (as McCray does), the HOA receives from the sale of the house the debt it's owed by the homeowner and the amount it owes lawyers for litigating the foreclosure. The remaining proceeds of the sale go to the foreclosed-on homeowner. So even if McCray were to lose his home, it should be noted, he will still receive at least some cash for it.

Unless a court concludes that an attorney has grossly overcharged for his services, Freedman says, he can most likely count on collecting what he is owed: The asset -- the house -- is more than enough to cover the bill, even if it is exorbitantly high.

After McCray failed to pay his assessment fee in 2010, he agreed to pay $100 a month to meet his debt obligation once it reached about $2,400. But his debt still reportedly continued to grow, as the HOA heaped on legal expenses.

Chapter 720 of the Florida Statutes states that a homeowner in Florida who is 90 days late on his HOA assessment may have his rights to amenities and common areas revoked, according to the Fleysher Law Blog.

The HOA may charge a fine for each day that the account is in default, and if the fine reaches $1,000, it may claim a lien against the resident's property, the blog also says. It adds that a resident is then responsible for paying costs associated with hiring attorneys to handle liens, collections and foreclosures.

How $300 Turned Into $4,000

Carol Piering, a representative of Community Management Professionals, the property management employed by the Vistas Homeowner Association, emphasized that her client -- which, like other HOAs, is nonprofit -- has made every effort to work with McCray to draft a payment plan.

"The board has no interest in owning the home. They don't want to see the homeowner out of his home at all," she said.

Piering confirmed that the HOA had, in fact, negotiated a payment plan with McCray in the past but could not say why McCray's debt reportedly continues to accumulate. She also couldn't say how McCray had racked up, in less than two years, $1,000 from late fees and interest on what was originally just a $340 debt. The answer is relevant since $1,000 is the amount at which the HOA was allowed to tack on legal bills -- the reason the debt is now above $4,000.

Both the Vistas Homeowner Association's attorney, Kathryn Smith of Stovash, Case & Tingely, and McCray's attorney, Michael Valverde of Myers & Eichelberger, declined to comment because the case is ongoing.

Neither could McCray be reached for comment.

The octogenarian reportedly wasn't able to make the original payment because of medical bills that resulted from a heart attack and an operation on his gallbladder. On March 13, the vet's home is scheduled to be sold.

A Way to Hold On

While the HOA's response to McCray's missed payment may seem excessive, McCray can still save his home by paying his debt to the HOA and all the costs associated with the foreclosure, says Tim Iamaio, an office manager with the Price Law Firm in Orlando, Fla., which specializes in foreclosures. And if McCray owns his house in full, he should be able to borrow against it to make the payment, Iamaio says.

He says that he sees cases like McCray's, where neglected HOA payments spiral into foreclosures "all the time," even though -- as unpalatable as it may be to the homeowner -- the situation is relatively easy to resolve by just paying the amount asked. If the homeowner can afford it, that is.

"We kind of have a saying," he says. "It's kind of the ostrich mentality -- where people don't want to deal with it -- and they kind of stick their head in the sand and hope it goes away."

Attorney Freedman, also points out that HOAs have an obligation to other residents to collect assessments and other fees.

"Even though it's a small amount, the association really has to be able to protect its interest because if nobody pays, they can't maintain the community and its property, which can lead to a decrease in property," he says.

According to Lauren Ritchie, who originally reported McCray's story for the Sentinel, the community has indicated that, at least in this case, it's more interested in keeping McCray around than in seeing him lose his home. It's also reported that the veteran recently received enough in donations from neighbors to pay his full debt. "The matter is expected to be concluded next week," Ritchie said in an email.

Some other HOAs drew fire last year for a number of other seemingly excessive enforcement actions. Last summer, an HOA filed a cease-and-desist order on a home that was scheduled to be built for a wounded Army veteran in Evans, Ga.; it claimed that he had failed to file necessary paperwork. The association's president, however, admitted that some neighbors worried that the home's size -- and the custom style designed to accommodate the vet's paralysis -- would drag down property values.

Meanwhile, another HOA in Pittsburgh, Pa., seized a family's Virgin Mary display and fined them, while yet another ordered that a family remove a therapy playhouse for its 3-year-old who suffers from cerebral palsy.

See similar stories in AOL Real Estate's roundup of controversial HOA moves.

EDITOR'S NOTE: A word of caution for those seeking to donate -- according to Orlando Sentinel reporter Lauren Ritchie, the community already has raised funds to pay off McCray's outstanding debt.

Also see:
Where the Foreclosure Crisis Hit Hardest: Small Town, USA

HUD Renegs on Letting Evicted 101-Year-Old Return Home

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