Title Insurance Unavailability For Would-Be Buyers In Bankrupt HOAs May Make It Nearly Impossible For Unit Owners To Unload Homes & Bail Out

In Phoenix, Arizona, The Arizona Republic reports:

• Thousands of vacant properties and millions of dollars in unpaid dues are taking their toll on Arizona homeowners associations, and homeowners are paying the price.(1) [...] In the most troubled master-planned communities, generally those in recent high-growth areas [...], delinquencies have reached alarming proportions, placing some HOAs under serious threat of bankruptcy.

• Should an HOA go bankrupt, prospective homebuyers would not be able to obtain title insurance on the community's homes, making them nearly impossible to buy or sell.

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• Although there are no recorded instances of Arizona HOAs declaring bankruptcy thus far, the home-vacancy problem is widespread enough to cause serious concern, said Steve DeLaveaga, vice president of sales and marketing at Fidelity National Title in Tempe. "There are over 25,000 homes in our state that are just empty, vacant," DeLaveaga said.

• If an HOA did go bankrupt, the most serious consequence would be the inability of prospective homebuyers to obtain title insurance, required for any home purchased with a mortgage loan, he said. "Title insurers cannot insure a home in an HOA that is bankrupt," DeLaveaga said.

Source: HOA groups in Arizona cutting services, raising fees (Homeowners associations facing own crisis amid foreclosures).

(1) See Chicago Sun-Times: A cure for crumbling condos for the kind of horror stories that have resulted in Chicago, Illinois as a result of financially strapped associations going under.