Some homeowners and condominium owners associations, struggling after the foreclosure crisis, are increasingly turning to short sales or rental agreements to stanch losses and prevent future damage to their neighborhoods, real estate brokers and association managers say.

When the real estate market crashed at the end of the last decade, homeowners associations found themselves dealing with unprecedented numbers of homeowners either unable or unwilling to pay association dues.

Associations in the past simply filed liens and started foreclosures when homeowners failed to pay assessments or dues, a costly and time-consuming process. Associations rarely recovered money they were due.

As the foreclosure crisis lingers, however, boards are trying new tactics when homeowners don’t pay dues, people in real estate say.

Some associations are choosing to foreclose on delinquent dues-payers, taking title and renting out the home while they wait for the lender to foreclose and take ownership. Sometimes, a homeowners association will end up renting to the original homeowner who had stopped paying, says Andy Pressley with MECA Properties, which manages about 20 associations representing 2,000 condominium units.

Banks can sometimes take years to foreclose on a property.

“(Dealing with nonpayment) has taken a little more involvement, management and oversight” on the part of boards, Pressley said. “They’ve had to be a little more attentive to the issue. They don’t want to foreclose, but they have to make decisions for the best of the community.”

In another trend, some real estate agents and property managers say they are starting to encourage delinquent homeowners to instead do a short sale, where the property is sold for less than the outstanding mortgage. They say more associations are warming up to the idea of a short sale and postponing foreclosure auctions.

“A lot are really open to the process,” said Frances More with Carolinas Metro Realty, which has been working with homeowners groups for years.

A short sale doesn’t guarantee a homeowners association will recoup unpaid dues. But it takes the property out of the lender’s hands and can get a new, dues-paying homeowner in more quickly.

Growth in short sales

Short sales surged last year in the Carolinas, growing 25 percent in the third quarter of 2012 compared with the previous year, according to the RealtyTrac research firm.

One reason, brokers say, is more people are becoming familiar with the idea. Lenders also have streamlined the process considerably, making short sales more accessible.

Lind Goodman, broker and sales division manager with Henderson Properties, is working on a short sale involving a condominium in the Trademark tower uptown that has sat vacant for two years. Henderson Properties manages the condominium owners’ association at the high-rise on West Trade Street.

The condo owner stopped paying the mortgage and association dues and moved out, Goodman said. The lender is foreclosing on the home but the process is dragging on and the condominium association has lost out on thousands of dollars in unpaid dues.

Goodman is working with a potential buyer and is talking with the owner about doing a short sale. The buyer could try to purchase the unit at foreclosure auction, but the lender would likely get less than a short sale, statistics suggest. The foreclosure also may be postponed, delaying the purchase and hurting the condominium owners’ association.

“It’s just so easy now for people to walk away and the HOA is left in trouble,” Goodman said. “It can surely be a complete mess.”

Associations rely on homeowners to pay for items such as capital improvements and neighborhood maintenance. Condominium projects, such as Trademark, are particularly vulnerable when owners stop paying their dues because condo projects can require more extensive upkeep than a single-family neighborhood.

‘A big problem’

With lenders taking so long to foreclose, homes may sit vacant without yard maintenance or property upkeep for months. Unpaid dues can pile up.

If an association’s finances become too strained or unstable, it can scare buyers from the neighborhood or cause banks to tighten their lending requirements, making it harder for potential buyers to get loans.

When a homeowner falls behind on association dues, the association files a lien. The association may also start foreclosure proceedings.

But the lien is secondary to the mortgage, meaning the lender will be the first to get paid if any money is recovered. Homeowners associations usually recover nothing but still pay legal costs, which can reach upward of $2,000.

When a homeowners group forecloses, it takes title but doesn’t pay on the loan. It is then responsible for property upkeep until the lender forecloses.

Goodman said roughly a year and a half ago she and her colleagues were discussing how the foreclosure crisis was becoming “a big problem that we have to figure out” for some of the 94 associations her firm manages. They thought short sales might be a solution.

Some neighborhoods are especially hard hit because investors bought multiple houses during the boom and have since walked away from their investment. Goodman said these areas in particular could benefit from short sales because they can help preserve overall home values better than foreclosures.

In the Buckleigh neighborhood in northeast Charlotte, for example, the neighborhood has seen eight foreclosures and eight short sales in the past year, according to research by Henderson Properties. The average closing price for a short sale was $97,566 compared with an average foreclosure closing price of $78,856.

A complicated move

Not all of Charlotte’s associations are open to working with agents on short sales, agents say.

John Swope with CSI Property Management said he does not get involved with short sales and instead leaves such decisions to homeowners and lenders.

Prior to the housing meltdown, he never had to file a lien for the roughly 90 associations his firm manages, many by Lake Norman.

Now, he said, each association his firm manages may have three or four on average, though he said things have been improving and he has been filing fewer liens recently.

Short sales are complicated. They require an attorney, involve extensive negotiations and can be time consuming.

Wells Fargo senior economist Mark Vitner says short sales can be more attractive than foreclosures because such sales can net more money, giving homeowners associations a better chance of recouping some of their losses.

Elena Koshechko with Carolinas Metro Realty, for example, recently completed a short sale for a home in Providence Downs that the association was foreclosing on.

The short sale netted the homeowners association $9,000 in unpaid dues and assessments it would have otherwise lost out on, she said.

“If (the association) realizes they won’t get anything at all when there is a foreclosure, they will usually agree to sell the property and settle,” she said.