“Foreclosures hurt the value of neighboring properties.” We know it’s true for single family neighborhoods, but it’s a truism that really slams condominium associations:
A tough economy is leading owners of condominiums to increasingly walk away from condos, leaving ownership maintenance costs to those left behind. The trouble is forcing condo associations to foreclosure on more owners even before lenders do as a result of lost revenues. The efforts are an attempt to recoup maintenance costs and association dues lost as a result of non-payment.
It’s really gotten ugly out there in the condo world:
Tactics to collect late association fees are also forcing some associations to retain collection agencies to collect fees, slap liens on units and force banks that foreclose on condos to pay late association fees. Florida , which has more condos than any other state in the country, recently enacted a law that limits lenders to pay just six months late association dues. Other states have similar legislation pending, including Hawaii , a major second home and vacation market.
Late association fees have also led to trouble for associations to get mortgage financing to sell units in some projects. Banks are less likely to approve a loan on a development that has many owners in default of their assessments. Federal under-writing loan guidelines limit the number of late payers in any association to just 15% of the units.
This drives the prices for other condo owners up, but services down:
“Our concern is that with the number of foreclosures the remaining owners have to pick-up the burden,” said Gale Mennecke, executive director of the non-profit Association of Condominium, Townhouse and Homeowners Association of Illinois. “The board has to make sure that they are acting responsibly to protect all of the owners and be careful not to play favorites. Otherwise, the whole property suffers.”
The issue is troubling associations, some of which have had to file for bankruptcy protection as a result. Most associations don’t have the funds to survive deep financial hardships associated with a massive downturn in real estate, but depend on monthly association fees to pay the bills and other expenses such as on-site property management. To compensate associations are hiking assessments on all residents, cutting back on spending and capital improvements such as replacing roofs and driveways and paying gardeners to plant fewer trees and plants.
There are those investors who now see condos in hard hit areas as cheap investments. If they are smart, they will look beyond the price of the condo- association fees are a more complex problem than they used to be.