Even in the Bonfire

29 May

-by the Mysterious Flying Miser

As HBB readers will tell you, the state of Florida exemplifies housing-bubble consequence with blistering veracity.  And one of the most pointed details of Florida’s economic and literal skyline is the monstrosity of their market in condominiums.  It seems the available inventory looms over the state like a giant, ominous, pink flamingo (with beady little eyes), and how could any bank, ANY BANK, possibly anticipate loss mitigation in holding foreclosed condos off the market until an even later date?

Believe it or not, HBB readers, there is still shadow inventory, even in the bonfire that is Florida.  It seems that banks, in all their senselessness, will still refuse to foreclose on condominiums and other properties when subject to overdue HOA fees.

According to Ben Solomon, a Florida attorney, there is a substantial number of residential properties in Florida on which the owner stopped paying the mortgage more than 6 months ago, yet foreclosure proceedings have not begun.  Says Mr. Solomon, “The main reason is that these units are financially upside down, meaning the amount of the mortgages are significantly greater than the value of such units.  The lenders do not want to assume such upside down units because of all of the liabilities associated with them, including the obligation to pay maintenance assessments to the association, late fees, attorneys’ fees, costs, taxes, insurance, etc.”

When asked whether he thought banks were colluding to hold real estate off the market in an attempt to hide the true extent of their REO holdings, Mr. Solomon said yes.  “It is likely that many of these financially upside down units have already been internally written off as losses on such banks’ balance sheets, but they are hoping for potential short sales or other opportunities to liquidate these bad assets before having to acknowledge the same to the public and announce such losses to Wall Street.”

Mr. Solomon explains that accumulated HOA fees do nothing to inspire a foreclosing bank to unload its dreary asset.  “Due to the fact that the HOA statute (F.S. 720) and the Condominium Act (F.S. 718) both provide significant relief and discounts to qualified first mortgage holders in the amounts they must to pay to the associations when they take title, the law actually provides a disincentive for lenders to complete their foreclosures because they believe that whether they take 2 years, 3 years, or even 5 years, they still only have to pay the association the lesser of 6 months or 1% (under current condo law, although this may change to 12 months depending on laws coming out of Tallahassee) or  12 months or 1% (under current HOA law).”   

He believes lenders are acting in bad faith by not aggressively pursuing flagrant defaults under mortgage agreements, to the severe detriment of associations throughout the state.  Mr. Solomon also adds, “Associations need to be more aggressive than ever in pursuing all amounts due to them, including interest on past-due amounts (if authorized under the governing documents), all attorneys fees and costs, in addition to the full amounts due to the association.  A lawyer must be found who understands the latest legal strategies and preferably agrees to defer all of his or her legal fees until such fees are finally collected from the owner or their successor in title such as the bank (the way our firm does).”

From the Sun Sentinel. “No one can blame stressed Florida condominium owners and association leaders for seeking financial relief, and many are pinning high hopes on condo-reform legislation now on Gov. Charlie Crist’s desk awaiting his signature. ‘This bill contains elements that will help thousands of associations recover from this humongous recession,’ said Dan Mason, a unit owner and former association president of the Country Club Tower, the biggest high-rise in Coral Springs. ‘We are just keeping our head above water’ due to high condo unit vacancy and foreclosure rates.’”

“The bill would require lenders to pay 12 month’s worth of back fees — or 1 percent of the mortgage value — when they take title to a property through foreclosure or deed in lieu of foreclosure. Currently, banks and lenders must pay only up to six months of fees.”

From Barron’s. “If a condominium owner is behind on his mortgage, he usually isn’t paying his condo association dues either. And that, oddly, could be helping to prevent the already roaring rate of U.S. condominium foreclosures from becoming even worse. Condominium preforeclosure actions — the legal maneuvers that must be completed before a property can be seized — rose 37% last year, to 188,617, from 2008’s level, compared with 32% for all homes, according to RealtyTrac. But completed condo foreclosures fell 9%, to 66,506.”

“In part, this reflects an overwhelmed court system, federal pressure to get lenders to work with borrowers and the willingness of those lenders to allow short sales to keep from adding to the number of deadbeat properties on their books. But lenders’ reluctance to pick up condo-association fees also plays a role.”

“In the most troubled markets — think Florida, California, Nevada, Arizona and parts of the Midwest — some condos are three years in arrears on association fees. When a bank takes ownership, it risks having to pay those fees, plus any that accrue until it resells the unit.”

“For lenders, the simplest way to delay — or avoid — paying the dues is by postponing foreclosure until a buyer turns up who’s willing to shell out the accrued dues if the property is priced low enough. But in the current market, especially in the worst-hit areas, that can take a very long time.”

“Says Andrew Fortin, a vice president of the Community Association Institute, a national organization that represents 30,000 single-family-home and condo associations: ‘A lot of banks just aren’t foreclosing, but leaving people to live in their property two years without making payments to their associations or on their mortgages.’”

“Pompano Beach, Fla., lawyer Peter Wallis, who often represents condo associations, says this is understandable because the lenders ‘aren’t really getting hurt’ any more than they would be otherwise by delaying foreclosures, but that the associations are ‘getting mauled.’”

The News Journal. “At the peak of the area’s housing boom four years ago, Chicago native James Dolan bought a unit at the nine-story Oceanside Inn here when it converted from a hotel to a condo-tel. But, since then, the housing bust has cost him plenty. The owners association recently passed its second special assessment, on top of monthly maintenance fees, to make up for other owners who are in foreclosure or walked away and are not paying their fees. ”

“‘It ticks me off that I had to pay $6,000 above the asking price to get the place and then they let these deadbeats buy with questionable financing and now the place is in debt,’ Dolan said.”

“Circuit Court Judge Richard Graham recently approved the appointment of a ‘blanket receiver’ for the Oceanside Inn. It’s the first such ruling in the 7th Judicial Circuit, attorney Jason Harr said. ‘It’s groundbreaking in this district. It’s been approved in other districts, but it’s never been asked for and the court has never approved it here prior to when we did it,’ he said. ‘It’s given a life preserver to the association that was in dire straits.’”

“Owners associations by law are able to foreclose on the owner of a unit that is behind in fee payments. But the association has to file separate claims for each unit and owner. The cost is usually prohibitive for an association already under financial stress, Harr said. The blanket receiver order allows the association to include all delinquent units in one filing.”

“Similar blanket receivers have been approved in just a few Florida jurisdictions. They are not binding and have not been challenged in an appeals court, said Kevin Miller, head of the collections and foreclosures division for Becker & Poliakoff, a large community association legal firm in Fort Lauderdale. Most blanket-receiver cases involve large condos that are in significant financial stress and need emergency relief.”

“‘It’s up to each judge to interpret the statutes in each case,’ Miller said. ‘But, it’s a new strategy, a new argument, novel and it is catching on.’”


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