Condo Associations Feel Pinch of Housing Downturn
MELISSA BLOCK, host:
Among the many problems associated with the country's housing crisis, here's one more. Condo and homeowner associations are hurting. With the rise in foreclosures, growing numbers of people can't afford their monthly fees to community associations.
In Florida, NPR's Greg Allen reports that banks and mortgage companies are contributing to the problem.
GREG ALLEN: It's a spiraling problem. Condo owners who are facing foreclosure stopped paying their monthly maintenance fees. As those debts accumulate, condo associations increase fees or impose special assessments - new expenses that some residents now have trouble paying. At the Venetia Condominiums in downtown Miami, 40 percent of the residents are behind in their payments. And out of 341 units, condo board vice-president Stacey Stokes says as many as 10 percent are in foreclosure.
Ms. STACEY STOKES (Vice-President, Board of Directors, Venetia Condominiums): They're actually coming in so fast that I haven't recounted it lately. I know that we're going to be taking title to about five more in the next 60 days.
ALLEN: This is what it's come to at the Venetia. In order to collect past due maintenance fees, the condo board has begun foreclosing on the properties. But that's getting ahead of the story. First, like Stacey Stokes, we need to find out what happens after a bank forecloses on a condo. After she joined the board, she says she got an education in how foreclosure works. And for condo associations, it's not pretty. Under Florida law, banks holding to mortgage on a condo are only required to pay 1 percent of the mortgage to cover past dues and assessments. That amount, Stokes says, may not even cover the cost of the attorney.
Ms. STOKES: Maintenance fees anywhere from six to 12 months of maintenance fees, that money completely lost every time a bank steps in and forecloses -nothing that we can do about it.
ALLEN: Ten months of fees - the average time a foreclosure takes now - at the Venetia can amount to $18,000. Multiply that by the 35 foreclosures in the pipeline, and you get a measure of the fiscal challenge facing the board and the condo owners they represent. And this is by no means a problem unique to the Venetia or to Miami. Across the country, attorneys and groups that work with community associations say there's a growing sense of crisis. In Hollywood, Florida, Ken Direktor is an attorney with Becker & Poliakoff, a law firm that represents more than 4,000 associations across the state. Many have laid off maintenance and security staff. At some, the residents are now cutting the grass - cost-saving measures that don't help a condo community's value or its desirability. Direktor says because of foreclosures, two-thirds of the associations are increasing dues or assessments.
Mr. KEN DIREKTOR (Attorney, Becker & Poliakoff): But at what point are the owners taxed to the brink that they can't pay it anymore? And what'll happen is you'll just push more people who never intended to walk away from the unit to do so.
(Soundbite of knocking)
ALLEN: At the Venetia, Stacey Stokes and board president Sharon Dodge are getting their first look at unit on which the condo association has foreclosed. Dodge unlocks the door.
(Soundbite of opening door)
Ms. STOKES: Well...
(Soundbite of laughter)
Ms. SHARON DODGE (President, Board of Directors, Venetia Condominiums): It's clean, but it's also stripped.
Ms. STOKES: It's cleaned out. They're cleaned out.
Ms. DODGE: Literally, every appliance, every bit of countertop - we're down to bare sheetrock here. Looks as if it might have actually been in construction and as if construction might have simply ceased.
ALLEN: Dodge and Stokes are shocked. They're hoping to rent or sell some of the condos they're taking over. Without a workable kitchen or a bathroom, repairs here would cost up to $50,000 - money the condo association doesn't have. Here at the Venetia and across Florida, condo and homeowner associations are finding that the financial losses don't stop once a bank takes possession. The Venetia Condo Board has filed liens against two banks that took title and which still aren't making their monthly payments. In a recent survey, more than 60 percent of Florida condo and homeowner associations reported similar experiences. Board president Dodge says Florida's condo law was designed to facilitate a few foreclosures a year, not the dozens that communities are now seeing. And it's a law that she believes is tilted in favor of the banks.
Ms. DODGE: But it is actually penalizing almost to death, to their very survival, the condominium associations, and the actual unit owners are suffering as a result of this law.
ALLEN: The Florida Bankers Association didn't respond to request for an interview for this story. Board members at the Venetia have begun circulating a petition they plan to take to the legislature that would require banks and mortgage companies to be responsible after foreclosure to past association fees. And to help cover the shortfall, the owners of these luxury downtown condos are doing something that's just a few years ago, they wouldn't have considered. They've signed a deal to rent out one side of their building as space for a billboard. [POST-BROADCAST CORRECTION: The condo board signed an agreement to rent out one side of their building as space for a billboard, but it was not ratified by other condo owners.]
Greg Allen, NPR News, Miami.
Correction July 29, 2008
The story says owners of the Venetia condos in Miami had signed a deal to rent out one side of their building for a billboard. The condo board had signed such an agreement; it was not ratified by other condo owners.