FORECLOSURE
Small debt can spiral into loss of home


 

Article Courtesy of The Miami Herald

By DONNA GEHRKE-WHITE
Published January 9, 2005

This should be one of your most important New Year's Resolutions: Remember to pay your homeowner or condo association dues on time -- or risk losing your house.

Just ask Robert and Theresa Denson and their four children.

They lost their Boynton Beach home when their homeowners association foreclosed over a debt of $1,200. A year later, they are renting an apartment.

''I don't want anyone to go through what we went through,'' says Robert, 42.

The issue of homeowner and condo associations foreclosing on homes to collect small debts has spawned debate nationwide. California legislators passed a bill that would have prevented homeowners associations from foreclosing on homes to collect small debts after a family lost their home over $120, but the bill was vetoed by Gov. Arnold Schwarzenegger.

Florida consumer groups plan to ask state legislators and Gov. Jeb Bush to support similar legislation in the upcoming session that begins in March. No group keeps statistics on association liens and foreclosures, but it's probable that thousands of Floridians face legal action over fees every year.

''We think there have to be safeguards in order to avoid what I consider ridiculous foreclosures,'' says Jan Bergemann, head of the nonprofit statewide homeowners consumer group, Cyber Citizens for Justice ( www.ccfj.net).

''These boards are absolutely powerful,'' he adds. ``They can bring homeowners to their knees because they have unlimited [access to pay] legal fees.''

Community associations have broad powers to foreclose -- and leave owners homeless -- if members don't pay their regular dues or special assessments, says Fort Lauderdale attorney Blane Carneal.

''There is fundamental ignorance -- people are under the impression that an association cannot foreclose if they have a homestead exemption,'' he says.

Until last year, when the Legislature enacted a change in the law, associations could also foreclose on homes whose owners didn't pay fines.

BALLOONING BILLS

Bills can quickly balloon for homeowners who get behind in their payments, because they are charged not only late fees, but the legal fees of the lawyers hired by the associations to collect the payments.

Bergemann says it's typical for a homeowner who owes $500 to be hit with $3,000 or $4,000 in legal fees. His group, he adds, hears horror stories of associations filing liens on people who owe a few dollars or are just a few weeks late. One man who owed $76 had to pay $800 in legal fees to keep his homeowners association from filing a lien against his property, he says.

''The majority of people who get into trouble were making payments but for one reason or the other -- they get laid off, they get sick -- and they didn't make their association payments,'' Carneal adds. ``They didn't understand the consequences of that.''

Robert Denson says he and his wife had gotten behind on their dues when they separated for several months. Once they got back together, the Densons tried to start paying their debts. They had used their life savings, about $18,000, to buy the house in 2000, the couple said.

''I figured the mortgage was more important,'' he says, so he paid that first rather than what they owed the homeowners association.

''People don't realize how devastating this can get,'' adds Cathy Lively, a West Palm Beach attorney who helped the Densons get about $10,000 in equity after their house was foreclosed on and sold at auction.

She says by the time the Densons came to her last March it was too late to save their house, now worth an estimated $375,000.

''They unfortunately sought legal counsel after it had been sold,'' she says. ``That's why it is so very important to take action immediately.''

NO DEAL

The Densons say they were confused. Robert Denson says he thought he had an oral repayment agreement worked out with the president of the homeowners association but ''the president didn't make a deal,'' says association attorney Randall Roger.

Roger, a Fort Lauderdale attorney for the homeowners association, says that the couple were mailed several past-due notices, first by the association's management company, then by himself.

The association filed a lien, then foreclosed in fall 2003, when it still hadn't received the past-due money, Roger says. The house was sold in December 2003.

Typically, homes sell for below-market value at foreclosure auctions and owners lose tens of thousands of dollars in equity, attorney Lively says. The Densons had to hire her to get the $10,000 that they ultimately received from the sale of their home, after their debts, including the homeowner dues and legal fees, had been paid.

As a homeowners association attorney, Roger says he doesn't like foreclosing.

''My job is not a pleasant one,'' he says.

SOMETIMES NECESSARY

But sometimes, he says, it is necessary to protect the associations -- and all the other homeowners who have paid their fees. The association needs the money to maintain the common areas, the clubhouse and other amenities. If one owner doesn't pay, the others have to pay more.

''The assessment is the lifeblood of the association,'' adds attorney Donna D. Berger, who is executive director of the statewide Community Association Leadership Lobby (CALL), an advocacy group for associations.

However, both she and Roger agree that the Legislature should look at curbing abuses -- such as outrageous legal fees or an association foreclosing on an owner who owes a few dollars.

But volunteer consumer advocate Bergemann says it's the entire system that needs reforming: Association boards now have too much power to take homes.

''Foreclosing on their neighbors -- they are not doing anyone a favor,'' he says.


STEPS TO FORECLOSURE

• A community association typically has a grace period in which fees are accepted without late charges, usually 10 to 15 days.

• If the payment isn't received, the management company will send out at least one warning letter. This letter usually says that if the delinquent fees -- plus late charges and any interest -- are not paid by a certain date, the association will turn the account over to the association's attorneys. This is the last chance to pay before legal fees, usually totaling much more than the debt, are added. A homeowner can ask for a payment plan, but the association does not have to agree to one.

• Lawyers will send at least one warning notice, telling the homeowners to pay before a certain date or there will be a lien filed. A lien means the owners cannot sell the property without paying the association.

• Once the lien is filed, the attorneys can file for foreclosure in circuit court. The court will serve a notice of the suit to the homeowner. If the homeowner has not yet hired a lawyer, he should do so now.

• The court will hold a foreclosure hearing. If the owner doesn't attend, the judge may automatically rule in favor of the association.

• If a judge agrees to the foreclosure, the home will be sold in an auction at the courthouse. The owner will then have two choices: Move out or buy back the house from whoever bought it.

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