Homeowners associations, the enforcers of neighborhood paint colors, holiday decorations and trash bins, are leading the latest surge in Phoenix-area foreclosures.
HOAs are foreclosing on a record number of homeowners for as little as $1,200 in missed maintenance payments, according to an Arizona Republic investigation. And homeowners who thought only their mortgage lender could seize property are losing their houses at sheriff’s auctions, sometimes for just $100 more than they owe.
“It’s become a huge issue,” Arizona Real Estate Commissioner Judy Lowe said. “Most homeowners don’t understand the foreclosure process and don’t know their HOA can foreclose.”
Arizona allows an HOA to foreclose after a year of missed payments or a debt of $1,200. But when HOAs add legal fees and interest to late payments, the debt can more than quadruple in a year.
Some homeowners fighting desperately to keep their homes find HOA balances often don’t match amounts listed in court filings, making it difficult to learn how much they really owe — and impossible to catch up.
Phoenix lawyer Jon Dessaules, who represents homeowners fighting foreclosure, called the process “a cash cow for lawyers."
"It's an attorney… selling a house in order to pay himself," he said.
Most states allow HOAs to foreclose on homeowners who fall behind on monthly dues, though lenders usually have first claim. In Florida, HOAs foreclose as often as lenders. In Nevada, Colorado and more than a dozen other states, HOA claims can supersede those of lenders.
Jan Bergemann of Cyber Citizens for Justice, a Florida advocacy organization, said Florida HOAs also can foreclose for unpaid fines.
"Let's say you have a roof that needs pressure washing," Bergemann said. "They can say if you don’t do it in 30 days we will fine you $1,000. If you don’t pay the fine, the association can foreclose. It's one of the big scams of the association."
In metro Phoenix, HOA foreclosures jumped in 2015 as home values rebounded from the recession.
Affordable neighborhoods in south Phoenix and the West Valley have been the hardest hit, though HOAs also are foreclosing in affluent communities such as the Scottsdale Pinnacle condos, Sun City Grand and Provinces in Gilbert.
Homeowners in various stages are fighting back through the courts. Some challenges succeed; others forfeit years of equity to the stroke of an auctioneer's gavel.
Cynthia Levine, 65, is facing foreclosure on a Maricopa home that she bought in 2006. She owes at least $24,000 in back payments, interest and legal fees to the Cobblestone Farms HOA.
Levine declared bankruptcy days before her home was to be auctioned off. In Arizona, a bankruptcy filing can usually stop collection efforts by HOAs and lawyers until a judge approves a reorganization plan.
Hugo Romero, 40, also sought bankruptcy protection after he was threatened with foreclosure on the Queen Creek home he bought in 2007. He fell behind on his fees to Johnson Ranch HOA four years ago after losing a job and opting to pay his mortgage and feed his family first.
He owes $15,001: $7,600 for missed HOA maintenance payments and the remainder for legal fees, fines and interest payments.
Marie De Sanna, 56, successfully challenged the legal fees the Terraces at Tiburon Condominium Association tacked on to assessments for the Chandler condominium she has owned for 30 years, and now shares with her 90-year-old mom.
After garnishing her wages in 2015 and taking a $6,000 lump payment in 2016, the HOA filed to foreclose early this year. De Sanna fought back in court, and a judge reduced the legal fees by two-thirds. Her HOA stopped foreclosure proceedings.
Martha McNair, 64, lost her Gilbert home in 2014 after falling behind on payments to Neely Commons Community Associations. She paid back more than $5,000 before the HOA's attorneys sent her house to a sheriff’s foreclosure auction.
She said the HOA's law firm would not give her a final balance so she could settle up; her lawyer is challenging the debt-collection practices in federal court.
During the recession, many Valley homeowners owed more to their lenders than their houses were worth. Because of the negative equity, investors had no incentive to buy foreclosed properties, and the HOAs let the debts ride.
As home prices rebounded, investors came back to sheriff's auctions and HOAs began to use foreclosure to collect debts more aggressively.
Since 2015, HOAs have started foreclosure actions on more than 3,000 Phoenix-area homeowners, according to The Republic’s investigation. In 2016, a record 330 people lost their homes to HOA foreclosures in Maricopa County. This year, HOA foreclosures are on pace to match the record.
During the height of the Valley’s housing crash in 2010, HOAs foreclosed on 63 homeowners. In 2002, a stable housing year before the boom and bust, there were 58 HOA foreclosures.
By comparison, Valley foreclosures by lenders fell to about 3,100 in 2016, the lowest level in a decade. In the midst of the housing crash, they topped 41,000 annually.
City Property Management Co. of Phoenix manages HOAs for 20 of the 50 Maricopa County communities with the most foreclosure filings, including the two leaders since 2015: Riata West (36) and Camelback Ranch (26).
Brian Lincks, president of City Property, said his company uses foreclosure to coerce balky homeowners to pay up.
“We don’t want their houses,” he said. “About 90 percent of our homeowners pay when we file to foreclose.”
Lincks said the company prefers to work out a repayment schedule with homeowners. He criticized the legal maneuvers some community managers and law firms use by layering on fees and interest as the debt goes unpaid.
“To me these are like payday loans, and (the attorneys) ought to be put out of business,” Lincks said.
Bergemann described similar instances of escalating fees in Florida.
"You get a letter from an attorney," he said. "The attorney writing the letter charges $500. Now you owe the maintenance fee, the late fees, the attorneys fees. The attorney drags you along and your bill is up to $2,000. In the end, people can't pay because they don’t have the money and they foreclose on the house."
About half of Valley homeowners live in a community run by one of Arizona's 9,000 HOAs.
The covenants, conditions and restrictions homeowners sign at closing contain language advising that an HOA can collect dues using any means necessary, including foreclosure. But in the flurry of reading loan and title documents, homeowners can miss that provision.
Cynthia Levine said she had no idea her HOA could foreclose.
"I don’t think most people do know," she said.
A single woman with no children, Levine shares her 1,800-square-foot home with Sammy, her 10-pound pet Pomeranian.
Sammy runs the house, Levine jokes. But her name appears on the foreclosure paperwork filed by Cobblestone Farms.
At the time, she owed about $9,000 in back dues and an additional $8,000 in attorney's fees, court fees and late penalties. Today the debt stands around $24,000.
Levine began missing quarterly HOA dues in 2008, during the recession.
"I know it's my fault," Levine said.
In 2015, she began paying $500 a month to the HOA. At one point, Levine had the money to pay off what she owed to the association, but not enough to cover the legal costs. The HOA wouldn't accept partial payment and filed for foreclosure in March 2016, she said.
Cobblestone Farms HOA declined an interview because Levine's case remains in litigation. But in a statement, the association said non-paying members put the HOA "at risk of not being able to meet its financial obligations."
The statement also noted that the HOA board's preference is always to settle outside of court.
"The Board would not authorize foreclosure, unless an owner’s account was substantially delinquent and the board had determined that all other alternatives had been exhausted," the statement said.
Meanwhile, Levine remains in her home, waiting for the outcome of her bankruptcy case.
"The HOA is heartless," she said. "Literally I'm going to be homeless. Sammy and I will be out on the street."
In Arizona, an HOA can sue a homeowner to collect debts after one missed payment, though foreclosure can’t begin that early.
In Florida, HOAs can start charging daily late fees on one missed payment and foreclose as soon as a homeowner owes $1,000. In California, HOAs can foreclose after a homeowner is $1,800 behind on assessments, but that amount can’t include late fees.
In most states including Arizona, homeowners must be given a current tally of what they owe, including legal fees.
Maricopa County court records state Valley homeowners often don’t respond to the notices, which are delivered by mail or in person.
Johnson Ranch HOA served Hugo Romero with a foreclosure notice early one morning in his driveway as he returned home from his graveyard shift as a prison guard.
“We missed a few payments when I lost my (previous) job and tried to catch up but couldn’t,” he said. “We would pay our HOA what we could, but then we started getting these fees for lawyers and court filings, that blew up what we owed.”
The quarterly HOA assessments on Romero’s home were about $190, but in 2013 his HOA was also charging him $400 to $800 a month. He understood the usual $15 to $20 late payment fee but didn’t understand the big legal fees. The totals on the court filings and HOA balance sheet differed by about $1,000.
Romero wanted to keep the home for his wife and four children and hired attorney Diane Drain to help him file for Chapter 13 bankruptcy.
“We waited too long to get help,” Romero said. “I didn’t understand what my HOA was charging me, and why they could foreclose."
The Johnson Ranch HOA did not return phone calls seeking comment.
Drain said Arizona should require home purchasers to sign a document “with big letters saying that their HOA can foreclose if they miss $1,200 in payments. ... Most homeowners don’t understand what’s happening until they lose their house and all the money they invested in it.”
The nation’s 350,000 HOAs and community managers are largely unregulated. Some states, though not Arizona, require them to disclose financial statements and personnel information, but little else.
The Arizona Department of Real Estate can help homeowners with basic HOA complaints like fines and disputes over paint colors but can't intervene in a foreclosure.
"We have seen some very sad cases of homeowners facing foreclosure by their HOA, but by then it's too late for us to help them," Commissioner Lowe said.
The Arizona Association of Community Managers says foreclosure should be a last resort.
"Foreclosure is not something any of us are interested in," board chair Lori Percival said.
The board will revoke certificates from community managers who abuse their powers. But community managers don't need an AACM certificate to operate. Only 60 percent of the state's community managers belong to the self-regulated group.
With little oversight, distressed homeowners often have just one option: find a good lawyer.
Marie De Sanna had been through two lawyers before she found Jon Dessaules. The first was disbarred a few days after missing a hearing in her case, for a variety of ethics violations, according to the Arizona Bar Association.
The Republic is not naming the disbarred lawyer because reporters could not find him for comment.
Another lawyer decided De Sanna's case was too far along to get involved.
After losing a job in 2014, De Sanna fell behind by $1,200 on her HOA dues. When she returned to work, the HOA began garnishing her wages by about 20 percent a month, she said.
Even though she made a dozen payments during 2015, her debt doubled from about $3,750 to $8,000, due to legal fees.
“I would make a payment, but they would still charge me a late payment and legal fees,” she said. “I went to arbitration. I pulled together all the money I could and tried to settle with my HOA, but they turned me down over and over.”
In January, her HOA filed for a judgment, the step before selling her home at a foreclosure auction.
A few weeks before the auction was scheduled, she hired Dessaules.
De Sanna also reached out to her neighbors.
“I was frantic. I wrote a note to each HOA board member telling them how much I wanted to pay what I owe and keep the house for my mom and me,” she said. “I delivered the notes, and a week later my foreclosure auction was canceled.”
She doesn't know if it was her note-writing campaign or Dessaules' legal work that stopped the auction. But she also won the second prong of her challenge: In June, a judge found the $15,000 in legal fees charged by Cornerstone’s law firm “disproportionate” to the work done and cut the amount to $5,000.
The HOA manager, Joe Latkowski of Cornerstone Properties, declined to comment through an email. The association’s attorney, Beth Mulcahy, didn’t return calls.
Now current on HOA dues, De Sanna began paying down the $5,000 in June.
“I want to pay what I owe,” she said. “I just want it to be fair.”
Dessaules was the second lawyer to represent Martha McNair, who lost her Gilbert home in 2014. She agreed to let Dessaules discuss her case.
McNair paid $225,000 for a 1,900-square-foot Gilbert house in 2004. She owed about $700 in maintenance fees the first time the Neely Commons Community Association took her to court in 2009.
Over the next few years she'd catch up and then fall behind as attorneys fees raised her debt.
By June 2012, McNair owed about $6,500 in assessments and attorneys fees. The HOA sought to foreclose.
But McNair and Neely Commons reached an agreement: She would pay the association $2,500 and then make $250 monthly payments until the judgment was paid off or for 12 months — whichever came first. In return, the association would waive about $1,000 in fees, according to court documents.
McNair made the initial $2,500 payment and then submitted an additional $2,500 over 10 months, according to court documents.
She then made several attempts by phone and by mail to reach the association's law firm, Maxwell & Morgan, to see how much — if anything — she still owed, according to court documents.
Unable to confirm her balance with the attorneys, McNair sent a $275.74 money order to the firm on Sept. 23, 2013, believing that was all she owed. She had paid a total of $5,275.74.
Thirteen days later she received an email from the firm stating that she owed an additional $1,500 in attorneys fees and costs. The same day, the association filed a notice of sale with the Maricopa County Sheriff's Office.
In the sheriff's notice, the association listed additional attorneys fees, assessments, late charges and court costs for a grand total of $5,226 still due.
At the time, McNair was represented by the lawyer who has been disbarred. Six days before her home was to be auctioned, he attempted to quash the sheriff's sale but failed.
McNair's home was sold to an investor for $75,000 on Jan. 9, 2014. The house was worth $200,000 and McNair owed less than $60,000 on her mortgage.
In April 2014, Dessaules filed a federal lawsuit against Maxwell & Morgan, alleging the firm violated the law by failing to communicate with McNair when she inquired about her debt and by including unawarded attorneys fees in her balance.
"In her situation, it sort of exemplifies what's wrong with the system," Dessaules said.
In November 2015, a U.S. District Court judge ruled Maxwell & Morgan did not mislead McNair and that the failure to respond to her balance inquiry did not constitute an unfair collection practice. The judge also awarded Maxwell & Morgan $2,567 in court costs.
Neely Commons did not return phone calls seeking comment. Maxwell & Morgan referred all questions to attorney Joshua Bolen, a member of the Central Arizona chapter of the Community Associations Institute.
Bolen said he couldn't comment on specific cases but said generally it would be unfair to make the homeowners who pay their dues consistently also foot the legal bill for the one person who didn't.
Dessaules has appealed the district court decision to the 9th U.S. Circuit Court of Appeals in San Francisco and expects a ruling later this year.
"It would frankly just be nice to have some clarity moving forward," Dessaules said.
Homeowners could also benefit from more transparency in the sheriff's auction.
“HOA auctions are very confusing. It’s hard to find out when and where they are,” said Dessaules. “And then they don’t always go as scheduled. It’s a difficult process for a homeowner to try to figure out.”
But real-estate bargain hunters know where and when to go: Second floor of the Maricopa County Courthouse. Thursdays.
In April, an investor snapped up a west Phoenix condo for $10,408, about $100 more than the homeowner owed the Villas Casita Homeowners Association. Nearby units were selling for $140,000.
No one interviewed for this story could say whether the previous owner of the Villa Casita condo would be notified about any money left over, or what happens to unclaimed funds in general.
The Villa Casita HOA did not return phone calls seeking comment.
Arizona homeowners have six months, or 30 days if the house is empty, to buy back, or redeem, a foreclosed home.
But the redemption price is much steeper than pre-foreclosure. The homeowner has to cover the amount owed the HOA and its lawyers, plus an 8 percent return for the investor and a few hundred dollars in auction-processing fees.
“We get a lot of calls from homeowners trying to get their house back and wanting the redemption amount,” said Rob Benner, who handles the foreclosure auctions for the Maricopa County Sheriff's Office.
“Few homeowners have been able to buy back their houses."
There are three ways homeowners can lose their homes:
1. A lender, usually a bank or mortgage company, can foreclose after the owner stops making mortgage payments. This is the most common type of foreclosure. Lenders can't start foreclosure proceedings until a borrower is at least three months behind on payments.
2. People can also lose their house if they don’t pay property taxes. An investor can buy a house for as little as a few thousand dollars in back taxes. These homes are sold at sheriff's auctions.
3. HOAs can foreclose if a homeowner misses a year or $1,200 in monthly maintenance payments, whichever comes first.
USA Today Network and The News-Press reporter Patricia Borns contributed to this article.