The Big Picture in CIC land.
Community Associations (CA), Common Interest Communities (CIC) or Planned Unit Development (PUD) over the last thirty years has become a staple of new home development for many reasons. CIC may be in the form of a Condominium, Cooperative or Homeowner Associations but they all share in number of characteristic.
Insurance Underwriters are dropping policy holders and coverage in entire states for economic reason, and to the policy holder the GLUE reports help to track claims and facilitate eliminating long term liabilities. In the CIC arena this could be multiplied when Insurance companies drop unit owners policy's because of their CIC's issues. Where's a condo going to get insurance when no underwriting will back a policy?
How are owners going to sell if their association is not compliant with underwriting guidelines? New Insurance Issues
Fannie Mae is now longer underwriting loans on properties in CIC's that have more that 10 percent of assessments outstanding. In reality it is the opposite about only 20 percent have that scenario. If a property loan cannot go Fannie it goes HUD.
States and Courts are limiting the ability of CIC to collect these assessments dooming the whole community without help in collecting these monies.
The reserve funds of these associations are very under funded and will result in the government having to back a community with a loans or grants to cover legislation that communities must comply with by law. The Association of Professional Reserve Analysts is telling us that about 80 percent or more are under funded.
What will underwriter or insurance companies do when they look at these numbers?
The Government:
On the local level these private communities are viewed as a way to have new homes with out the local jurisdiction having to manage roads,street lights recycling and trash services. In fact residents of these communities all pay local taxes to have many for these service that are provided to the non association housing.
This is an effect a double tax! Why should residents of these communities pay the tax and have to pay for private trash collection.
On the State level there exist the greatest impact on CICs. State require CIC to be incorporated in the state they reside and enjoy the state taxes that these residents pay, yet the state seem to be working against CIC by not providing them remedies to compel unit owners that are delinquent in assessments to pay up.
A community goes over 10 percent in pass due assessments Fannie Mae, Freddy Mac, and HUD will not underwrite a loan in that community.
On the federal Agency level, the lack of understanding of these communities particularly the lack of oversight by HUD of their subcontractors to their responsibilities to pay assessments of HUD owned properties and failing to provide community documents does more to undermine these communities then nearly all the other problems that are coved on this site.
There is a requirement by HUD for communities to maintain assessment collection and reserve accounts that their closing agents refuse to pay.
Congress, both parties and sides, have exhibited no real understanding of how communities are formed and that so many, 50 Million, american are in one of these developments. Here are a couple of example of how they are actually hurting or denying communities needed help.
1. The Clean Water Act requires communities at their expense to test and clean storm water ponds --99 percent are in a CIC. A new community of first time home buyers could be saddle with 10-100's of thousand of dollars in cost for a pond that they just took over and did not build. Large established CIC could face bankruptcy trying to clean up their ponds.
2. FEMA will not reimburse a CIC for roads and common elements repair and replacement caused by natural and other disaster. The reasoning is that they are private, The 3 out 4 new homeowners and federal tax payers should be interest to lean of this imbalance.
The former chairman of Fannie Mae when told about many of these issues, declared that Fannie Mae had no interest in how these communities are run. With 3 out 4 new homes in one, how can they not have a concern*?
