In this paper, we examine the connection between homeowners’ associations (HOAs) and foreclosure in the recent housing crisis. Past research has focused on the geographic proximity of foreclosure and sales price, but there is still some uncertainty as to the causal mechanism. Do foreclosed properties stigmatize a neighborhood, provide low comparable sales that impact subsequent bargaining, simply increase of the supply of homes for sale or create a specific immediate disamenity as the soon-to-be-abandoned property languishes?  The nature of the spillover can have very different policy implications. If the event of foreclosure itself impacts proximate parcels, then some effort to delay or forestall it might be worthwhile. On the other hand, if it is the case that foreclosures lead to homes falling into disrepair, which in turn affects other properties’ prospects, then one should try to make the foreclosure process as fast as possible once homeowners become delinquent. Examining HOAs can inform this debate. For example, many HOAs provide yard maintenance that can limit the visual blight associated with some foreclosures. They are also a smaller, and perhaps more responsive, form of private government that can coordinate additional security in the case of abandoned properties.

Alternatively, HOAs and the public goods they provide may be particularly vulnerable to non-payments associated with foreclosure. Do the negative effects of spillovers manifest themselves “more negatively” for properties within HOAs, suggesting that properties in HOAs are bearing the added burden of supporting delinquent members? Homeowner distress has brought many HOAs to financial ruin, as many HOAs could no longer count on timely payment of assessments. As assessments fund the common facilities and maintenance, the deterioration associated with distressed homeowners may weaken the collective action made possible by the HOA. This leads to house price uncertainty and possible depreciation, both of which contradict the inherent appeal of HOAs (i.e. insurance against property value decreases).

This analysis furthers the line of research looking into the negative spillover effects of foreclosures, and intersects it with the growing literature on the role of HOAs in local service and housing provision.  In order to test the above hypotheses we combine several novel data sources. We use a comprehensive database of HOAs for the entire state of Florida as of 2008 and map them, at a residential parcel level, onto the property tax rolls (including information on the last two sales) compiled by the county assessors. We also obtain a database of delinquent loans from CoreLogic, which contains most of the subprime originators, and thus a large majority of distressed loans, through 2009. We match distressed loans to properties and then calculate the density of properties within an HOA that are delinquent as well as those that are simply physically nearby,  consistent with other recent papers. This represents, to our knowledge, the most comprehensive data set used to analyze HOAs and distressed property.