A Miami condominium
association has filed for bankruptcy, buried under tens of
millions in debt.
Experts fear it could be a warning sign of what’s to come
for other aging complexes across Florida.
When a homeowners association (HOA) collapses, the impact on
residents is immediate and painful. Pools, gyms, and other
shared amenities are shut down, landscaping is neglected,
and basic maintenance stalls.
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Florida's condos are in crisis with bankruptcy for some HOAs the only way out |
The situation has become so dire that Governor Ron DeSantis recently signed a law imposing sweeping reforms aimed at making HOA boards more transparent, accountable, and less intrusive.
Starting July 1, the law will rein in
homeowners associations (HOAs) long accused of slapping
residents with surprise fees and fines for petty
infractions. It aims to prevent situations like the Sunset
Palm Villas Condominium Association bankruptcy.
According to an online filing, the Sunset Palm Villas
Condominium Association in Miami filed for Chapter 11
bankruptcy, listing debts of up to $50 million, while
holding no more than $1 million in assets.
While the court documents don't reveal
exactly what triggered the financial collapse, experts say
HOA bankruptcies usually stem from a toxic mix of problems:
poor financial planning, underfunded reserves, emergency
repairs, missed dues, and sometimes even fraud or
embezzlement.
With many older condos now facing costly upgrades and new
insurance mandates, bankrupt HOAs may become increasingly
common — and financially devastating for owners caught in
the fallout.
Ultimately it comes down to poor money management by members
of the board and lack of transparency with residents.
David Podein, Equity Partner and Chair of the Real Estate
and Transactional Law Group at Miami based Haber Law, has
secured over $100 million in bank loans for condo
associations to fund urgent improvements and avoid
displacement.
He told DailyMail.com that following the Surfside collapse
in 2021, some HOA boards woke up to the fact they needed
serious change and took the proper steps to get up to code.
But, many did not.
‘Some buildings are doing the necessary work. They're going
out and doing special assessments and their financing those
special assessments with loans that allow the unit owners to
repay the fond over a longer period of time,’ he said.
‘Others are not.’
Podein has been obtaining bank loans for condo associations
to prevent bankruptcy and so they can realistically pay
their special assessments over much longer period of time so
it becomes much more affordable.
In the Sunset Palm Villas case, the filing was submitted on
June 21 in US Bankruptcy Court in Miami and was made by
property manager Julio Martinez.
The complex, built in 1958, consists of 267 units in several
two-story buildings. The median home price in the
development is $149,000.
The list of creditors after the HOA is exhaustive.
It includes multiple law firms, engineering companies, The
United States Internal Revenue Service, Miami-Dade County’s
Department of Regulatory and Economic Resources, Miami-Dade
County Tax Collector, Miami-Dade County Water & Sewer
Department, The United States Attorney General, and more
The exact amounts owed to each were not disclosed.
Now, under Chapter 11, the HOA can continue to operate — but
decisions must now be court-approved.
Under the court’s supervision, a repayment plan will be
drafted and enforced, which is going to trickle down to the
homeowners.
The homeowners in the community will now be held accountable
for a portion of the debts of the HOA, and the HOA may seek
to recoup its losses through special assessments, which
homeowners are legally obligated to pay.
If they refuse to or can’t afford to, the HOA may pursue
collections or even liquidate personal property to pay down
debts.
Homeowners can take a few steps before things reach that
level — but they need to team up and hire an attorney who
specializes in HOA and condominium law.
Next, if they suspect their funds were mismanaged,
homeowners may have legal grounds to sue board members for
negligence or breach of fiduciary duty.
This also includes suing board members for failing to attend
meetings, making self-serving decisions, or financial
incompetence.
Transparency is key for all HOA boards, Podein stressed.
He advises boards to plan strategically, budget wisely, and
communicate openly with residents.
Keeping adequate reserves and staying within the community’s
means can keep financial disaster at bay.
A well-run HOA doesn't need to fear bankruptcy because the
board is honest, he said.
‘Boards need to be open and honest with the homeowners,’ he
said.
‘If they put off funding reserves they put off funding
repairs for the building for years and years and the more
you put off these projects, they become much more expensive
because it becomes such a bigger project.’
Meanwhile, condo prices in Florida have hit rock bottom,
with homeowners desperate to sell amid all the problems,
like expensive HOA fees and stubborn mortgage rates.
Realtors predict that right now may actually be a good time
to buy a condo in the Sunshine State.
As inventory continues to rise and prices cool, real estate
agency Compass agrees, releasing a report that says 'now is
the perfect time to buy a home in Florida.'
Especially because this housing market won't last forever.
Compass also urged buyers to explore Vero Beach and
Sebastian, specifically.
Florida realtor Lance Willard sold a two-bedroom,
two-bathroom condo last month for $155,000 in Palm Harbor.
'In my opinion, it's always time to buy if you can afford
it,' he tells the Daily Mail. 'If you understand the market
conditions and potential future pitfalls, you should buy.'