When HUD forecloses on owners who default on FHA insured loans, HUD takes ownership of the property. Unfortunately for associations, the property goes into HUD's REO Department and the property is often left unoccupied and unmaintained. Squatters sometimes take over the property, windows are broken and weeds grow knee-high in the yard.
When an association makes demands on HUD to keep up the property, they are frequently ignored. Hearings and fines are meaningless because associations have no jurisdiction over the federal government. A form letter is the standard response given by HUD to association demands. HUD has adopted a policy of allowing the properties to fall into ruin and then selling them "as-is." The City of St. Paul sued HUD over this practice and lost. (United States v. City of St. Paul.)
Recommendation: Boards should talk to legal counsel when faced with this situation. There are some innovative approaches that may help blunt the problems created by HUD.
ASSISTANCE: Associations needing legal assistance can contact us. To stay current with issues affecting community associations, subscribe to the Davis-Stirling Newsletter.