Saturday, April 10, 2010

The Great Foreclosure Debate, Part III

The article below was sent to us by Mark Benson, a community association expert in Florida. His thoughts provide additional perspective on the continuing debate over assessment foreclosures and the effect of non-foreclosure policies on the remaining owners.

Unintended Consequences for Community Associations in Florida and Nationwide

Again we hear about the largess of the government putting a moratorium on foreclosures of the first mortgage.

On the surface, this sounds benevolent.  Now let's look at the realities.

1.  If the home is in a condominium, homeowner association or co-op, they are probably also not paying maintenance fees.  This means the other owners must continue to subsidize the mandatory expenses of the association.  

2.  The moratorium of mortgage foreclosures creates an ongoing obligation to the association that continues to increase with interest, late fees and legal fees.  These are extinguished when the mortgagee finally takes title. The condominium association will get reimbursed 6 months of maintenance fees or 1% of the mortgage amount, whichever is less.  A homeowner association will get reimbursed 12 months maintenance fees or 1% of the mortgage amount, whichever is less.

3.  This will increase the delinquent amount for each month’s payment missed plus interest and penalties to the extent it will be impossible for the homeowner to recover.

Typically, this is a minimal amount compared to what is owed and is compounded by delays in foreclosures.

An association may institute foreclosure and take title to the unit but the mortgage still has priority.  Therefore, if the association takes title and rents out the unit they may get the rent but the mortgagee will eventually foreclose against the association.

In order to accomplish this the association may also incur thousands of dollars of fees and costs that may not be recoverable. 

4.  There is no incentive for an under-water owner to make any mortgage, tax or maintenance fee payments since it may be years before they are foreclosed out of the property.

5. There is no incentive for a mortgagee to foreclose and incur attorney fees and then be stuck with a property worth only 50% of the outstanding balance due.  They have a huge backlog of property now and the courts are still jammed with pending cases.

Click the title link above to read the rest of this article...


  1. hi was suggested by another Ph.D. in Govt., that our 6 member assn. go bankrupt and we start another one, since dissolution is apparently all but impossible.
    Has anyone done that???
    I won't go into our issues which are huge and are not financial....more legal but insurmountable so we need out of the box ideas to get out of our jam.

  2. You mention that your issues are not financial. If they were, bankruptcy won't help as our January blog post, "Bankruptcy won't Work" explains. That would seem to leave rule or covenant problems which would most likely also survive a bankruptcy since they are in the chain of title. If it is the association's corporate structure or bylaws that are the issue, yes you could dissolve the corporation with the necessary vote of the members and create another entity to administer the project, but if you can get agreement on that you should also be able to amend your CCRs. Again, bankruptcy does not appear to be the answer.