Homeowner associations throughout South Florida are becoming more assertive in the fight to maintain property values and their own bottom lines amid one of the worst housing collapses since the Great Depression.
A new legal strategy and a sweeping condominium reform bill are empowering boards hit hard by budget shortfalls after a deluge of foreclosures in recent years.
Associations now are attempting so-called reverse foreclosures, which force lenders to seize homes more quickly than they otherwise would. Banks often delay taking back these troubled properties to avoid having to pay past-due assessments.
Meanwhile, new legislation that went into effect July 1 gives condo boards statewide more authority in dealing with delinquent tenants and unit owners.
Plantation City Council member Bob Levy commends associations for aggressively dealing with the crisis, but Fort Lauderdale lawyer Donna DiMaggio Berger said they had little choice.
"Many of these associations have had their eyes opened," said Berger, executive director of the Community Advocacy Network, a statewide group for common-interest ownership communities. "They've seen that inaction makes the situation worse."
The crash in home prices during the past few years pushed thousands of owners into foreclosure, although banks have been slow to take back the properties. Widespread vacancies left the state's 50,000 community associations starving for cash to pay for such services as cable, water and maintenance.
Many boards felt they had little recourse, except to charge higher fees to the remaining owners.
Last fall, though, the Association Law Group in Miami decided to try something different for one of its clients. The firm, representing the Keys Gate Community Association in Homestead, maneuvered to force a lender into court for a hearing that resulted in the bank seizing a home within the development.
The association, which already had taken title when the owner stopped paying fees, asked a judge to assign a certificate of title to the lender on the same day as the hearing. The judge granted the request, making the bank the legal owner. And with that came the responsibility of paying association fees.
Since then, the firm has completed at least 10 reverse foreclosures in Miami-Dade and Broward counties and has dozens more in the pipeline, said Ben Solomon, co-founder of the Association Law Group.
"We came up with this new legal strategy to address the flagrant stalling of lenders," Solomon wrote in an e-mail. "Each month of delay by the bank in its foreclosure process will typically turn into an additional month of bad debt to the association, which then must be paid unfairly by the [existing] owners."
Alex Sanchez, president of the Florida Bankers Association, said lenders aren't dragging their feet but instead are trying to work with borrowers to keep them in their homes. "If that's wrong," he said, "go ahead and accuse us of that."
The Jacaranda Lakes Homeowners Association is facing $45,000 in total delinquencies at the 1,150-home development in Plantation.
In two cases, the board took title to run-down homes after the owners stopped paying fees, said Nathan A. Tarler, secretary-treasurer. The lenders still have mortgages on the two properties but have yet to initiate foreclosure proceedings.
To get the lenders to take back the homes and assume responsibility for renovating them and paying past-due fees, the association filed for reverse foreclosure. A Broward judge last week denied one of the requests, but another judge could rule differently at a later date, said Robert Kaye, Jacaranda's lawyer.
Despite delays and uncertainty, Jacaranda residents say they're thrilled that the association is trying to address the situation. The two homes have mold problems and need new roofs.
"Whether you live next door or not, it impacts all of our values," homeowner Lynn Albertelli said.
The condo reform legislation, SB 1196, allows associations to demand rent from tenants if the owners are delinquent. If the tenants don't pay, the boards can evict them with court approval.
The law also gives homeowner associations the right to restrict common-area uses and suspend voting privileges for owners who are 90 days delinquent. Critics argue, however, that parts of the bill are poorly worded and leave too much open to interpretation.
The Verano at Delray Beach Condominium Association Inc. is gaining possession of five units and evicting those tenants, said Steve Cohen, a receiver hired by the association. It also may gain control of an additional 20 vacant units.
Many of the individual unit owners owe more on their condos than they're worth and aren't paying association dues even though they're still collecting rent from tenants. That resulted in a shortfall for the board of about $10,000 a month, Cohen said.
In two months on the job, he said his firm, Community Concepts, has boosted Verano's collectibles by about 20 percent. The situation at the 242-unit development will improve even more once the association takes possession of the units and is able to renovate and lease them to new tenants.
"What we want to do is improve the quality of life of the condo for all the residents," Cohen said.
Sharon Dodge, board president of Venetia Condominium Association in Miami, said her 382-unit development on Biscayne Bay was plagued by squatters and non-paying unit owners.
"Lots of people were taking a free ride," Dodge said. "When some stopped paying, others said, 'Why should I pay?'"
Outraged, the board fought back, Dodge said. It moved to foreclose on 140 units, which prompted some owners to pay past-due fees. The association still has title to 23 of the condos and is renting those.
At one point, the Venetia homeowners association was $3 million in debt, but it has since reduced that to about $900,000, she said.
"We're really in good shape," Dodge said. "And we did it strictly by being tough."
Source: Sun Sentinel, Fort Lauderdale, Fla., Paul Owers and Lisa J. Huriash. Distributed by McClatchy-Tribune Information Services.
Thursday, August 19, 2010
Thursday, August 12, 2010
Collection Efforts After Bank Foreclosures - The New Association Paradigm
Is your Association Leaving Money on the Table?
Bank foreclosures continue to be an impediment to collection of unpaid assessments in many communities. Sure, after the 2010 legislation became effective, community associations are entitled to collect either 1% of the original mortgage debt or 12 months worth of assessments from the mortgagee (whichever is less), but what about the rest of the balance? Does it disappear into thin air?
Because a bank foreclosure will usually directly impact the ability to successfully lien and foreclose, communities must be aware of other alternatives to collect unpaid assessments.
Strategic Defaults - According to Wikipedia:
A strategic default is the decision by a borrower to stop making payments (i.e. default) on a debt despite having the financial ability to make the payments.
While many owners who lose their units in foreclosure cannot pay, it is important to remember that a unit owner is personally liable for all unpaid assessments that are left when a bank forecloses. The Association may seek to collect the balance on the account from the former owner. More and more, people who do have assets make choices to abandon properties because there is no equity. If there is a possibility that an owner has assets to satisfy a judgment, a community should consider taking action against a former member to collect those unpaid assessments.
Many associations are thinking short-term instead of long-term when they decide to forgo pursuing a money judgment for the balance between what a lender pays if it takes title as a result of foreclosure and the outstanding obligations on the account. Yes, there are costs involved. If the association doesn't have a lawsuit pending, it needs to file a lawsuit. There are attorneys fees, filing fees, costs associated with service of process, etc. If the association already has its lawsuit pending, most of those costs have already been absorbed - so why not wait for the bank to foreclose (and pay its statutory obligation), then continue to pursue the balance against the former owner? A judgment is recorded in the county and with the State's registry; it is initially valid for 10 years and can be renewed for another 10 years. During that time if the debtor desires to buy another property, obtain financing for purchase of a vehicle, college, etc., the judgment will appear.
While the debtor/former owner may not have sufficient cash-flow right now, who knows what the future will bring? If the debtor has significant assets in another state, the association can even take the extra step of domesticating the judgment in another state and pursue collection efforts there.
Asset Searches Can Be Helpful in the Decision Making Process
An asset search may help discover assets. It is more difficult (sometimes almost impossible) to collect from a corporate unit owner or a foreign person. Nonetheless, your community should consider its options after a bank foreclosure - you may be leaving money on the table.
Source: http://www.floridacondohoalawblog.com/admin/trackback/216973
Bank foreclosures continue to be an impediment to collection of unpaid assessments in many communities. Sure, after the 2010 legislation became effective, community associations are entitled to collect either 1% of the original mortgage debt or 12 months worth of assessments from the mortgagee (whichever is less), but what about the rest of the balance? Does it disappear into thin air?
Because a bank foreclosure will usually directly impact the ability to successfully lien and foreclose, communities must be aware of other alternatives to collect unpaid assessments.
Strategic Defaults - According to Wikipedia:
A strategic default is the decision by a borrower to stop making payments (i.e. default) on a debt despite having the financial ability to make the payments.
While many owners who lose their units in foreclosure cannot pay, it is important to remember that a unit owner is personally liable for all unpaid assessments that are left when a bank forecloses. The Association may seek to collect the balance on the account from the former owner. More and more, people who do have assets make choices to abandon properties because there is no equity. If there is a possibility that an owner has assets to satisfy a judgment, a community should consider taking action against a former member to collect those unpaid assessments.
Many associations are thinking short-term instead of long-term when they decide to forgo pursuing a money judgment for the balance between what a lender pays if it takes title as a result of foreclosure and the outstanding obligations on the account. Yes, there are costs involved. If the association doesn't have a lawsuit pending, it needs to file a lawsuit. There are attorneys fees, filing fees, costs associated with service of process, etc. If the association already has its lawsuit pending, most of those costs have already been absorbed - so why not wait for the bank to foreclose (and pay its statutory obligation), then continue to pursue the balance against the former owner? A judgment is recorded in the county and with the State's registry; it is initially valid for 10 years and can be renewed for another 10 years. During that time if the debtor desires to buy another property, obtain financing for purchase of a vehicle, college, etc., the judgment will appear.
While the debtor/former owner may not have sufficient cash-flow right now, who knows what the future will bring? If the debtor has significant assets in another state, the association can even take the extra step of domesticating the judgment in another state and pursue collection efforts there.
Asset Searches Can Be Helpful in the Decision Making Process
An asset search may help discover assets. It is more difficult (sometimes almost impossible) to collect from a corporate unit owner or a foreign person. Nonetheless, your community should consider its options after a bank foreclosure - you may be leaving money on the table.
Source: http://www.floridacondohoalawblog.com/admin/trackback/216973
Sunday, August 8, 2010
Condo Conversions: Scrutinize the Disclosures
Condominium conversions became tremendously popular (because they were profitable) during the housing boom. Many old tired apartment buildings were converted to condominium ownership, remodeled and then the units sold. In some cases the developer substantially remodeled the building and improvements by updating plumbing and electrical systems, replacing the roof, replacing or modernizing elevators and "gutting" the interiors. In other cases the developer merely installed tile where there was carpet, upgraded the kitchen with fancy cabinets, stainless steel appliances and granite counter tops then painted before selling the units. If the developer of the conversion project funded converter reserves, unit purchasers are left without statutory warranties.
When an apartment building is being converted to a condominium, Section 718.616, Florida Statutes requires the developer to provide each prospective buyer, as part of the Prospectus or Offering Circular, with certain inspection reports from professionals. These reports focus on the physical condition of various portions of the building and improvements. With respect to certain aspects of the building (such as the roof, structure, heating, plumbing and electrical systems), the owner must disclose the age of the component, the estimated remaining useful life of the component, the estimated current replacement cost, and the structural and functional soundness of the component. The specific purpose of the disclosure requirement is to protect the prospective purchaser by allowing them to make an informed decision whether to purchase a "new" unit in what may be an old building.
We are all guilty of not reading the "fine print" from time to time. That was especially true when purchasers found what seemed to be an affordable price for a condominium unit in the hot real estate market. Unfortunately for many of those buyers, some of those buildings needed substantial work. Levying assessments to repair elevators, perform concrete work, repair damages from roof leaks and other expenses in a "new" condominium is stressful for the members of the board of directors and causes friction between the owners and the board.
If the developer is out of the picture, bankrupt, no longer in business, etc. is there any recourse for the association and its members?
There is, especially if the building disclosures weren't accurate. Florida Courts have found that the engineers and other professionals preparing these disclosures supplied expert information which was intended to and did guide and inform prospective purchasers on the condition of the building. Accordingly, if engineers or other professionals provide false information which reaches and is relied upon by people who are expected to receive and rely on the information, they may be held liable for expenses incurred by the association to repair or remedy the undisclosed defects. There was an effort by the legislature this year to vitiate remedies against design professionals. That bill was vetoed by Governor Crist.
This is not to say every statement of false information in an inspection report in a condominium conversion will lead to a potential claim. It will, however, open the door for those associations where purchasers were truly harmed by the misrepresentations of professionals who are supposed to be providing honest, objective evaluations of the condominium property.
Source: http://www.floridacondohoalawblog.com/admin/trackback/216191
When an apartment building is being converted to a condominium, Section 718.616, Florida Statutes requires the developer to provide each prospective buyer, as part of the Prospectus or Offering Circular, with certain inspection reports from professionals. These reports focus on the physical condition of various portions of the building and improvements. With respect to certain aspects of the building (such as the roof, structure, heating, plumbing and electrical systems), the owner must disclose the age of the component, the estimated remaining useful life of the component, the estimated current replacement cost, and the structural and functional soundness of the component. The specific purpose of the disclosure requirement is to protect the prospective purchaser by allowing them to make an informed decision whether to purchase a "new" unit in what may be an old building.
We are all guilty of not reading the "fine print" from time to time. That was especially true when purchasers found what seemed to be an affordable price for a condominium unit in the hot real estate market. Unfortunately for many of those buyers, some of those buildings needed substantial work. Levying assessments to repair elevators, perform concrete work, repair damages from roof leaks and other expenses in a "new" condominium is stressful for the members of the board of directors and causes friction between the owners and the board.
If the developer is out of the picture, bankrupt, no longer in business, etc. is there any recourse for the association and its members?
There is, especially if the building disclosures weren't accurate. Florida Courts have found that the engineers and other professionals preparing these disclosures supplied expert information which was intended to and did guide and inform prospective purchasers on the condition of the building. Accordingly, if engineers or other professionals provide false information which reaches and is relied upon by people who are expected to receive and rely on the information, they may be held liable for expenses incurred by the association to repair or remedy the undisclosed defects. There was an effort by the legislature this year to vitiate remedies against design professionals. That bill was vetoed by Governor Crist.
This is not to say every statement of false information in an inspection report in a condominium conversion will lead to a potential claim. It will, however, open the door for those associations where purchasers were truly harmed by the misrepresentations of professionals who are supposed to be providing honest, objective evaluations of the condominium property.
Source: http://www.floridacondohoalawblog.com/admin/trackback/216191
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