Condo and homeowner associations are needlessly losing millions of dollars in past due maintenance fees and assessments. The housing bust started the problem, but management companies and the associations’ lawyers are oftentimes only making matters worse.
Here in Miami, it’s no secret that home purchases are on the rise. It’s also no secret that the foreclosure rates are increasing too. Believe it or not both are actually good things for an association because as soon as the property gets into the hands of new ownership, the new owners have to start paying the monthly maintenance fees.
However, it is very likely that associations could be savings thousands of dollars in the time it takes a bank to foreclose on someone who is also behind on their maintenance fees and mortgage. Why? When a homeowner gets behind on their association fees and mortgage payments it takes anywhere from three months to over a year before the bank files the foreclosure suit in court. The homeowner will seek either a loan modification or try to short-sale (a sale for less than the amount the homeowner owes the bank) which often extends the time for the bank to finally send the property to auction. The time between the start of the foreclosure suit until the end-sale at the auction can last years. Banks consistently delay the sale because they don’t want to own the property and be obligated to pay the monthly association maintenance fees, future taxes, and dues.
This delay can actually be a good thing for an association if the homeowner is trying to short-sale the property. When a homeowner finds a buyer, and the bank approves the purchase price, the bank will also offer a settlement for past association fees, often several thousands of dollars. If the bank offers to pay thousands in past association dues and fees, the association can either agree to the settlement or hold out for more.
If the homeowner was $24,000 delinquent in past association dues ($1,000/mo. for 24 months), the bank may offer to settle for $12,000. If the association agrees, then the sale will happen and the property will change ownership into the hands of a dues- paying owner. If the association rejects the offer, the purchaser can pay the difference or walk away.
What oftentimes happens is that the management company for the association will add additional charges and late fees to the delinquent amount and also refer the matter to the association’s attorney who will add a couple thousand dollars to the delinquent account for “collection efforts” (which are rarely anything other than mailing a form letter printed by a secretary and billed at extremely high rates). All these extra charges become part of the delinquent amount and the management company, or their attorney, will reject the $12,000 offer.
The members of the condo or homeowner’s association rarely ever learn that an offer to pay $12,000 was ever made. When past due amounts, after the association and attorney add their charges, increase the delinquent account to nearly one-third of the purchase price, the hopes of a short sale become futile. If the property cannot be sold prior to the foreclosure auction, there is a very strong chance (close to 99% if you look at the current auction results in Miami) that the bank will end up owning the property.
When the bank purchases their delinquent mortgage-properties at a foreclosure auction the bank is required to pay only the lessor of 1% of the purchase price or six months of past association dues. Using the previous example, the association would only receive likely $6,000 of the $24,000 actually past due. The association’s rejection of the settlement made during the short-sale offer would have gained them $12,000 and the new owner would have been paying the monthly fees months (sometimes years) earlier.
Unfortunately, association members are usually unaware that their management companies and attorneys, by charging such high fees, are preventing sales that could drastically change the economic situation for their associations. One cause for this is that board members do not pay close attention to these fees because they are usually paid by new purchasers. Association members rarely know that the fees are being charged because they do not pay them either.
However, when the short-sales don’t happen and thousands of dollars in assessments are divided among the owners that do pay, the pain is all too real. Rarely are condo or homeowner association members aware that the pain may have been completely avoidable.
This blog was posted by Miami Attorney Matthew E. Ladd, 255 University Drive, Coral Gables, FL. 305-665-3978.
The information provided is only for informational purposes and should not be construed as formal legal advice. Every situation is different and a review of your specific circumstances should be handled by an attorney. This blog does not create an attorney-client relationship.