A guy I know bought a townhouse several years ago near me. He is very responsible and has never missed a payment, but he is on the verge of walking away from his house and mortgage. Like most townhouses, the neighborhood association charges dues, and maybe unlike a lot of townhouses, those dues pay the water bill since the units are not individually metered and can’t be retrofitted due to the water supply lines being shared among units.
The homeowner’s association went through some bad leaders, at least one of whom was stealing money or hiring family to do work at exorbitant prices. At some point, some people stopped paying their dues. Then they had a water leak which was at first identified as a natural spring until someone noticed their water bill was completely out of hand. This is when the trouble starts. The association was low on funds already from the theft, mismangement, and dilinquent dues and didn’t have the money to pay this huge water bill due to the leak. Over time the water bill got larger and larger and fewer and fewer people were paying their dues. They put liens on people’s units for not paying dues, but these were ignored and the liens expired. In order to evict people, lawyers would have to be hired, requiring more money that they didn’t have. Instead they paid what they could to the water company who at this point was threatening to shut off their water if they didn’t make good on the bill. People started to leave the complex or were foreclosed. Today only 20% of the units are occupied and there are only a handful of people still paying their dues. The water will be shut off soon and there will be no way to get it turned back on short of coming up with tens of thousands of dollars to pay the water bill. So after paying on the place for years, he’s just going to leave and rent an apartment. He knows his credit history will be trashed for walking out on his mortgage, but he can’t live there and he can’t sell the unit either. Even if he could pay off the water bill for the whole complex, they would soon be in debt again due to people using water and not paying dues. Soon all of these different mortgage companies will own all of these different units (or the water company will) and be stuck with nearly worthless property with no water service.
This guy loses all of the equity he had in his home. The mortgage company loses the money they lent out. And the water company still won’t be paid. Everyone loses.