HOAs cry foul over foreclosures

Break banks get on back dues hurts associations, they say by the numbers

                             

Article Courtesy of The News-Press

By Dick Hogan

Published December 15, 2008

 

Local homeowners' associations and condo boards say banks are unfairly getting a break on how much back dues they have to pay when they take back a home in foreclosure.

That's resulted in financial pain for some associations and helped drive others to the brink of collapse.

But bankers say it's unfair to tag them with all the costs resulting from a bleak housing market and an overwhelmed court system that can take a year or longer to process a foreclosure.

Now both sides are gearing up for a fight in the state legislative session next spring.

At the root of the problem are the thousands of homeowners who have gone into foreclosure in the past two years - often paying far more than they're worth today.

When that happens, the consequences for their communities can be harsh.

Jim Woodward, for example, was forced this week to leave his condominium at Centre Court in Fort Myers after a 10-month foreclosure process.

He was in mediation with lender Remo Enterprises LLC for awhile after falling behind on his payments and until recently, "I still held out hope," he said.

Remo is required to pay the back condo fees now that it owns the unit, but only the first six months' worth of fees or 1 percent of the original mortgage amount of $89,400, whichever is less.

That will leave the condo association with a loss of almost $2,000, which association president Susan Snyder said will have to be paid by the remaining owners.

With eight foreclosures still working their way through the courts, that adds up to a financial headache for the 99-unit complex in central Fort Myers, she said.

"We are $33,000 in arrears as of this month," Snyder said. As a result, the mostly elderly owners were recently hit with a $350 special assessment.

"That's so unfair," she said, noting that in a regular sale the condo association would get all the back fees due - either from the seller or the buyer.

In addition, Snyder said, absentee owners in foreclosure often rent to undesirable tenants and the condo association has little leverage to kick them out.

It's time to do something about the situation, said Ken Direktor, chair of the community associations practice for Fort Lauderdale-based law firm Becker & Poliakoff. The firm represents many of the condo and homeowners' associations in Florida.

"There are legislators who are interested in increasing liability, but the question is how far they'll be willing to go," he said. "The associations are already taking a beating. The lenders are taking months and years to foreclose."

A petition being circulated by supporters of a change has been signed already by about 200 condo and homeowners' associations, Direktor said.

Part of the problem is the massive numbers of foreclosures being filed - about 2,000 a month in recent months - but he said lenders are themselves delaying quick resolution of the foreclosures. "I think they're dragging their feet."

Bankers say that's not true.

"Banks do not want to foreclose and we're working with our customers every day to prevent it," said Florida Bankers Association executive vice president Anthony DiMarco.

But if a lender has to foreclose, he said, "We want to do it and everybody move on. I'm not aware of any conspiracy. I've been told by my members that it's categorically untrue."

The problem is that with the large numbers of foreclosures happening, it can take as long as 18 months for one to go through the court system, DiMarco said.

Besides, he said, "I don't know why someone who lends money should be on the hook for the whole thing."

Bill Valenti, president of Fort Myers-based Florida Gulf Bank, said he hasn't had to foreclose for about a year but that the real issue is the slow pace of the courts. "If the judicial process moved more quickly, perhaps it wouldn't even be a discussion -but it drags on so long, the fees mount up."

It's a complex policy issue whether bankers should be fully responsible for the back fees, said John McIlwain, senior resident for housing at the Washington-based Urban Land Institute.

On the one hand, he said, if delays are caused by a moratorium on foreclosures or by efforts on the part of the lender to reach an agreement with the borrower, "I can see the case for limiting the fees."

But, McIlwain said, "If it's just that the judicial process is blocked up or they delayed because they're so busy, they should owe the whole thing."

Also, he said, banks are generally better able to absorb the costs, so it might be better policy to put the burden on them. Otherwise, the increased fees fall back on the rest of the homeowners and that could result in increased defaults.

State Rep. Gary Aubuchon, R-Cape Coral, said he hasn't seen any proposed legislation yet but that the root cause of the problem seems on the surface to be the backlog in the court system. "The better focus would be focusing on that."

In Lee County, court officials say the backlog of about 30,000 cases will take at least a year to dispose of, even with efforts by the judges to hear more foreclosure cases starting this month.

Meanwhile, the hard-hit condo boards and home associations in the county are preparing for the worst.

Warren Davies, until recently president of the Stoneybrook at Gateway Master Association, said the association put aside $50,000 for bad debt this year but next year "We're budgeting well over $300,000" in anticipation of a deteriorating situation.

Bill Davis, 64, of Marietta, Ga., who has a second home in the Renaissance condominium on Winkler Avenue in Fort Myers, said things are even worse in that community.

Only about 30 of the development's 112 units have owners who are still paying their condo fees, he said, although in recent months a few have reverted to bank ownership and he expects to start getting more money soon.

Until then, Davis said, "About all we can afford is to keep our electric on, our water still on."

 

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