Will Foreclosures in the Economy Affect My Condo Association?

Foreclosures stalk condo owners like a predator searching for prey. Foreclosures are at a 20-year high, especially in big cities. They are evenly split between builders going out of business and buyers who bite off more than they can chew. This is more common than most would have you believe. Condo foreclosures occur when the homeowner fails to make his mortgage payment, and the bank or lending institution is forced to sell the unit at below-market value. It is a devastating situation if you are in the position of having a condo repossessed or foreclosed upon. In some situations, the bank or lender will allow someone else to make the payments, which gives that person the right to move into the condo association.

When too many condo owners lose their units to foreclosure, condo associations feel the financial pain. That is bad news for homeowners who depend on condo association fees to take care of building maintenance, condo property insurance, utilities, landscaping and other shared amenities. Condo associations do have options, but most of them are not palatable to the owners. The condo board can borrow money from a bank, borrow money from the condo association reserve, reduce contributions to reserves, cut back on amenities, reassess costs, renegotiate service contracts, delay capital expenditures, increase monthly HOA assessments, and levy special assessments. They can offer payment plans or loans to the owners. They can waive late fees or penalties to help owners catch up on delinquencies.

Some condo associations are assessing anywhere from $10,000 to $30,000 per unit to make up for the shortfall. But there are also some actions a condo association cannot take.It cannot abandon its fiduciary responsibility just because the funds are inadequate, and it cannot abandon the effort to collect delinquencies. Once the condo association forecloses, the owner typically will stop paying the mortgage and the bank or lender may be willing to accept a deed to the property from the association in lieu of a bank foreclosure. Obviously, the No. 1 priority is to get someone in the unit who has the money to pay the assessments. Times have changed. Foreclosure stalkers (politely called investors) are not showing up in bunches at foreclosure auctions to snap up great bargains.

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