HOA bankrupted, is now the time to buy?

With rising insurance costs and litigation HOAs across the country are coming under pressure financially.  This is leading to more HOAs declaring bankruptcy.  Why is a recent lawsuit against an HOA so important? What does this mean for property owners? What are the top 5 reasons for HOA distress? Why are condo prices in many cities falling even though single family is basically flat?  Is now the time to buy?  What properties should you avoid at any price?

 

What happened in the recent lawsuit that bankrupted an HOA?

Corcoran bought a two-story home in 2015 in Parker, CO (a suburb of Denver).  In 2017 she began noticing water inside. Poor grading work, inadequate waterproofing, a nonfunctioning drain and holes in a veneer were the culprits, according to Lung. When the HOA removed siding, problems only worsened.

Then rainwater began pouring through holes in the roof and an uncapped fireplace flue. Despite Corcoran’s many complaints, the HOA did nothing until she sued it in 2022. It then placed plastic wrap over wet carpet, which only created more mold inside the home.

The judge ordered The Highlands at Stonegate North Condominium Association to pay $1.4 million to Corcoran, plus attorney fees that have not been calculated yet. In November, Corcoran began garnishing the condo association’s bank accounts.

“As a result, in order to protect the funds in its accounts for the benefit of all the condominium owners, prevent the depletion of all operating funds, and allow it to continue to operate and maintain the community, the (condo association) sought protection under Chapter 11,” Sherri Rosselot, president of the condo board, wrote in a bankruptcy court affidavit Dec. 5.

What is causing the increase in HOA distress?

It is not just Lawsuits causing distress as they are just one of the 5 reasons.

1. Soaring Insurance Premiums: The cost of property and liability insurance for community associations has increased dramatically, with some areas like Florida seeing premium hikes of 200% or more, largely due to natural disaster risks.
2. Deferred Maintenance: An estimated 70% of U.S. HOAs have underfunded reserve accounts. This results in deferred maintenance, which can lead to massive, unexpected repair costs (e.g., foundation issues, roof replacements) that trigger large special assessments for homeowners.
3. Rising Operating Costs: Inflation has driven up expenses for essential services such as management, landscaping, and maintenance, which HOAs must cover.
4. Homeowner Delinquencies: As HOAs pass increased costs to residents through higher monthly fees (which have seen a nearly 20% average increase in one year in some areas) and special assessments, more homeowners may struggle to pay their dues.
   1. Note many states like Colorado have made it increasingly difficult for HOAs to collect past due amounts which is further straining HOA budgets
5. Legal Challenges: Lawsuits from homeowners can drain an HOA’s finances through mounting legal fees, occasionally leading to bankruptcy filings as a strategic move to end litigation.

What does an HOA bankruptcy mean for property owners

Having an association declare Bankruptcy has huge implications for property owners:

1. Unable to sell a unit: Very few if any lenders would be able to lend on unit with an HOA in Bankruptcy as this would impact reserves, status letters, etc…
2. Unable to refinance a unit: No lenders would not want to refinance a unit that has an unhealthy HOA
3. Increased HOA dues to cover losses: Depending on the losses, dues might have to be increased substantially in order to get the HOA healthy again
4. Property Values plummet: You could see some condos decrease in value 50-75% or more as nobody wants to buy a unit with a bankrupted HOA as the liability from increased dues/assessments is nearly impossible to quantify.

How will the increase in  HOA distress across the country impact property owners?

1. Huge jumps in Dues and Special Assessments: the biggest takeaway is that many HOAs are substantially underfunded which will mean large jumps in dues and special assessments to close the gap
2. Decline in property values: As dues continue to rise, values will plummet in many units as prospective buyers shy away from units with higher dues
3. Some properties could become basically worthless: In some HOA’s the increase in dues and assessments would ultimately make an association worthless as many owners can’t afford the increases.  For example, take a class C high rise complex that has condos selling for about 100k, in many cases the HOA’s are substantially underfunded so when the elevators, roofs, sprinkler systems, etc.. are required to be updated the association will be forced to do a special assessment.  In this case assume the special assessment is 20k, it makes no sense for many owners to pay another 20k as this will not increase their property value and they likely don’t have 20k available as they are buying a 100k property to begin with.

What HOA’s are more at risk than others?

Not all HOAs will be impacted the same.  Some HOA’s will be fine, but

1. Older properties: Associations greater than 30 years old that have not been updated will have some huge expenses
2. High rise properties with central boilers, elevators, etc..: High rise properties have big expenses from elevators to roofs to central HVAC systems. These items are very expensive in high rise properties.  A new elevator could cost 250k, the same goes for roofs, sprinkler systems, etc…
3. Lower priced properties: in lower priced properties, owners many times do not have the reserves to pay for the upcoming assessments, furthermore lower priced properties are more likely to have kept dues artificially low to help the current owners and move many of the issues down the road that they will eventually need to face.
4. Cities/States with high litigation: Think of cities like Denver, Portland, Seatle that are very plaintiff friendly.  This drives up costs for HOAs and can ultimately bankrupt them as we can see in the case above.

Just at the beginning of the HOA problems: should you buy or sell?

We are just at the beginning of the huge issues that will be facing HOAs and ultimately homeowners.  We saw this in Fl with the collapse of the condo due to deferred maintenance which is now bringing many of these issues to light.  Unfortunately homeowners are going to be on the hook in the form of higher dues and special assessments.  These huge increases in expenses for homeowners will ultimately lead to larger declines in values especially in lower priced older condos that have central systems like elevators, sprinklers, etc…

With the issues facing many HOAs, now is the time to ensure you do your homework on the health of the HOA and of the property well in advance of closing.  On the flip side there will be some distress opportunities, but you need to be careful as there are some condos that could become not only worthless but ultimately a liability for owners. 

Additional Reading/Resources

 

1. https://www.denverpost.com/2025/12/11/parker-colorado-hoa-bankruptcy-toxic-mold-verdict/
2. https://coloradohardmoney.com/what-do-real-estate-pros-predict-for-denver-real-estate-prices/
3. https://coloradohardmoney.com/best-real-estate-investments-in-colorado-front-range/
4. https://www.fairviewlending.com/large-investors-must-sell-properties/
5. https://www.fairviewlending.com/will-real-estate-prices-rise-are-the-predictions-wrong/

 

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Glen Weinberg personally writes these weekly real estate blogs based on his real estate experience as a lender and property owner.  I’m not an armchair reporter/writer.  We are an actual private lender, lending our own money.  We service our own loans and own commercial and residential real estate throughout the country. 

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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending.  Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine,  The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.

 

 

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