Foreclosures Hit Condo Associations Hard

As the housing crisis continues, foreclosures have disrupted condominium communities in Florida and other states. Many condo associations are now facing insolvency. No place has been harder hit by the bust than Miami Beach.

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Now to Florida, one state where the economic downturn is affecting the world of condominiums. Foreclosures are creating cascading problems for condo associations, and many are facing insolvency. As NPR's Greg Allen reports, Miami Beach is one of the places hit hardest by the condo bust.

GREG ALLEN: After New York City, Miami Beach has the second highest housing density in the U.S. There are 90,000 people who live here, and over half live in condos. It's not all glitzy beachfront high-rises. Over the last several years, while construction cranes towered over South Beach, there was another condo boom going on here. Small apartment buildings across the island were converted to condos, many like this small 28-unit building in the North Beach neighborhood.

Ms. CAROL HOUSEN (Real Estate Broker, EWM Realtors): Look how cute is this.

ALLEN: Carol Housen knows a lot about Miami Beach condominiums. As a real estate broker, she specializes in selling them. She's also an owner. One of her investment properties is in this building just a block from the ocean. Built in the 1940s, she says it's classic Miami Beach.

Ms. HOUSEN: Stucco, two-storey, all one-bedrooms. They all have two entry doors. And these balconies that you see are typical Miami modern architecture.

ALLEN: When they were converted to condominiums in 2005, units here cost $129,000. Some were sold to young professionals. Others were snapped up by investors like Housen. But with the downturn in the housing market, hard times have hit Housen's Miami Beach condo. Units are vacant, and others need maintenance. Housen points to a door where wood panels are missing.

Ms. HOUSEN: Look at that last door. You've got an owner that has not a great tenant, OK. He doesn't take care of his unit. With it, it brings down the rest of the building. He's also in collection.

ALLEN: Two units in the building are facing foreclosure. Owners of two others quit paying their association fees. That's left Housen's small condo association with a $30,000 deficit, and the only way to make it up is by asking the other condo owners to cover the shortfall. In Miami Beach and communities across the country, it's a common story. A sputtering economy and declining housing values are forcing condo owners into foreclosure, and Housen says condo associations are left to pick up months of unpaid association fees.

Ms. HOUSEN: They're living there, use the water, use the insurance, use the trash, and we have no support from anyone to do anything about it. We can't restrict them from living there. But the banks are foreclosing quickly. And then when they do, it takes a year.

Mr. JERRY LIBBIN (City Commissioner, Miami Beach): It is a ticking time bomb.

ALLEN: Jerry Libbin is a city commissioner in Miami Beach who started a campaign to lobby for changes in the state law that governs condo foreclosures. He believes the state should take steps to make sure condo owners aren't burdened by other owners' unpaid fees.

Mr. LIBBIN: Those people who are making their payments - and some are really stretching and clawing just to try and stay current with their payments - if they end up having to pay special assessments for the bank which doesn't make the payment, clearly that's going to push some people into foreclosure. And it's continuing what I call a debt spiral.

ALLEN: In her little building, Housen estimates that just half of the 28 unit owners are financially stable. David Toledo(ph) falls into the other category. Toledo works as a home appraiser. In 2005, he bought a condo unit here for $129,000. A year later after the condo's value went up, he refinanced it for $180,000. At the same time, he found a renter for the condo and bought a second property, a house where he and his wife, Rosie, are now living. Now Toledo says what seemed like a good investment plan has turned into a nightmare. With the housing downturn, income from his appraiser's job is a fifth of what it had been. He's behind in his payments to the condo association, and he's facing foreclosure on his home.

Mr. DAVID TOLEDO (Home Appraiser): Everything is gone, and my dream gone, because I don't have nothing. All of what I have is, you know, I have two properties, this property and the other property. Nothing in my account. I'm broke.

ALLEN: In Florida, stories like David Toledo's have begun to draw the attention of state legislators. The head of the House committee that governs condo associations is planning hearings next spring to look at proposals that would hold banks accountable and help condo associations collect their unpaid fees. Greg Allen, NPR News, Miami.

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