Condo Foreclosures Stalk the Land

“Foreclosures are the top subject in the economic news today. Will it affect my condominium association too? What can be done?”

 

Foreclosures stalk condo owners like a predator looking for his prey. They are at an all time high in over 20 years, especially in the big cities.  They are evenly split between builders going out of business and buyers that bite off more than they can chew. With owners’ financial houses in complete disarray due to general economic conditions or loss of income, condo foreclosures are becoming a fact of life. This is more common than most would have you believe.

 

Foreclosures on condominiums occur when the current homeowner fails to make his mortgage payment, and the unit is being sold by the bank or lending institution at below market value. It is a devastating situation if you are in the position of having a condo repossessed or foreclosed upon. There is no choice for the bank or mortgage lender to get some money back through foreclosure because of the lack of payment by the owner. In some situations, the bank or lender will allow someone else to make the payments, which gives that person the right to move into the condominium. 

 

When too many condominium owners lose their units to foreclosure, condo associations feel the financial pain. That is bad news for homeowners who depend on them to take care of building maintenance, property insurance, utilities, landscaping, and other amenities that are shared in common.

 

Condominium associations do have options, but most of them are not that palatable to the owners. Boards of Directors can borrow money from a bank, borrow money from the association’s reserve, reduce contributions to reserves, cut back on amenities, reassess costs, renegotiate service contracts, delay capital expenditures, increase monthly assessments, and levy special assessments. They can offer payment plans or loans to the owners. They can waive late fees or penalties to help owners catch up on delinquencies. Some condominium associations are assessing anywhere from $10,000 to $30,000 per unit to make up for the shortfall.

 

There are some actions an association cannot take. They cannot abandon their fiduciary responsibility just because the funds are inadequate, and they cannot abandon the effort to collect delinquencies.

 

Once the condominium association forecloses, the owner typically will stop paying the mortgage and the bank or lender may be willing to accept a deed to the property from the association in lieu of a bank foreclosure. That could result in a faster sale of the unit to a new owner. Obviously, the number one priority is to get someone in the unit who has the money to pay the assessments.

Times have changed. Foreclosure stalkers (politely called investors) are not showing up in bunches at foreclosure auctions to snap up great bargains. We always used to hear about the great times when condominium properties were sold with profit to interested buyers and the associations recovered all their money, plus making a profit that financed the new landscaping at the front gate. Those times are gone!