NYT: Hidden Dangers in Buying Condo Foreclosures
The New York Times ran an article yesterday called “Collateral Foreclosure Damage for Condo Owners” about how owners are being saddled with paying special assessments, among other burdens, to cover assessments on foreclosed condo units.
The article talks about what the condo mess is doing to owners in downtown Miami. But Chicago is also mentioned.
We’ve chattered about this topic before. Maybe some owners in buildings, like The Sterling at 345 N. LaSalle, that have seen a lot of foreclosures can tell us how their boards are dealing with the assessment issue.
Buildings with few units can suffer even if it just one owner falls into trouble. Doris Wilson, who owns a one-bedroom apartment in a building in the Bronzeville neighborhood of Chicago, struggled to get a lender to pay $2,500 in association fees after it foreclosed on one of the seven units in her building. The bank eventually paid the money, and the association has since been able to paint its wrought-iron fence and clean the sewer system.
Still, Ms. Wilson worries that the expected sale of the foreclosed unit at about $94,000 will hurt neighbors who paid or refinanced their units for three times that price. In the short term, she dislikes asking her neighbors to pay an extra assessment of nearly $220. She dreads going to monthly condo board meetings, and she avoids some neighbors who are struggling to pay the additional fees.
“It’s personal,” she said. “Here they are going through a hard time and you have to ask them to pay.”
Marki Lemons, a Chicago real estate broker, says that investors are hesitant to buy properties with many foreclosures because of the possible problems. Some buildings with four to eight units have had so many foreclosures that their condo associations have disbanded and windows have been boarded up. In these cases, she does not even want to represent sellers, because buyers cannot get financing and will have to pay all cash. Sellers will be disappointed by those buyers’ offers. “They’ll probably give 20 cents on the dollar,” she said.
Collateral Foreclosure Damage for Condo Owners [New York Times]
This is where coooperatives are far far far better than condominiums. First off, they can screen for people with financial problems, investors and flippers. Secondly, if assessments aren’t paid, you can start eviction proceedings – nothing works quicker than a Sheriff’s notice in getting them paid (believe me, I’ve had to deal with having eviction notices filed) AND then the corporation gets to sell the unit at that point, not a lender, if it got to the point of foreclosure…
Condominiums in New York, in fact, starting to have requirements to purchase and requiring board approval as well. It will, I suspect, happen here soon enough.
Having never owned a condo, I am a bit of a novice, but are there no quick recourses against residents/owners who don’t pay their assessments and fees? How long are people given to catch up with their payments? Seems a bit absurd that people can continue live in buildings they can’t afford to live in.
There is usually nothing much a condo association can do, since you own you own unit. I think it’s a rather similar case to homeowners associations in single-family developments where you pay for local services. In some cases, they were able to have the homeowners evicted through liens (I think, this was a while ago).
Anecdotally, I know of a six-flat condo where one resident didn’t feel that they had to share in the assesments and quit paying them. The other residents determined it was cheaper to cover the cost than to sue or take them to court to recover the fees.
Thanks for the info nd, though a bit scary.
The association can evict the possessor of the unit (even if a renter) for unpaid association dues, and eventually the association can force a sale to recover the dues (in addition to their legal fees). I found this out the hard way when I rented a condo and on the day I moved in the sheriff’s deputy was there to serve me an eviction notice. Turns out the landlord hadn’t paid the association dues for several months. In the end, the landlord paid the dues and I didn’t get evicted. Note that eviction for unpaid assessments is not “quick” and I would have had at least 3 months (I think) to move out.
Couldn’t the association put a lien on the unit? It doesn’t solve the immediate cash flow problem, but the bank owner of the foreclosed property would have to pay off the lien (including lots of late fees) to sell the unit.
Illinois has a well-defined Condo Act:
Illinois Condominium Act
It’s all spelled out there and is pretty readable for non-lawyers if you have a little patience.
If someone doesn’t pay the assessments, the association can place a lien on the unit. The association can charge reasonable late fees and collection costs. The association can even file a motion to take possession of the unit, which does happen from time to time. I’m pretty sure that once the association has legal possession of the unit, they can sell it off to recover the unpaid assessments.
It appears this act applies to all owners, bank or otherwise. Maybe the big banks will pay attention once some condo association takes a few of their foreclosed units from them after they fail to pay assessments.
This is where coooperatives are far far far better than condominiums. First off, they can screen for people with financial problems, investors and flippers.
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Better becareful doing this to a member of a “victim” class. It would stink to have your board tied up in a lawsuit bec they thought the person was not “qualified”.
When you’re in a co-op and someone doesn’t pay or gets foreclosed doesn’t everyone’s assessment go up to cover that person not paying?
i’m renting from an investor in a high rise. my landlord owed like $4500 in assessments, i believe the association filed a lien against my landlord and tried to evict her. eventually the association recieved a judgement that order me to pay my rent to the association instead of my landlord. as a result, i assume my landlord wasnt paying her mortgage and is now in default. she is now trying to sell the condo in a short-sale.
A lien only does so much good…when the foreclosure hits and there isn’t enough money to pay the superior lienholder (i.e. the mortgage holder) the condo folks get nothing.
Tom: Are you still living in the condo or have you now moved out? Since if your landlord can’t sell in a shortsale, then a foreclosure will happen anyway.
This is the danger for renters that many of us have talked about. If you rent from a flipper/investor- how many are going to go under as the rent doesn’t come close to covering their costs?
It’s a risk for the renter- as it’s a pain to be evicted and costly to find a new place (moving costs etc.)
My building is part of ASCO (Association of Sheridan Road Condo and Co-Op Owners) and over the years they’ve been helping to improve Illinois Condo Law and influence other issues of particular importance to condo owners. There’s other groups throughout the city like ASCO and now might be a good time for newer associations to join up with their local group to gain from their knowledge and experience.
As pointed out, what’s coming will be hardest on newer buildings, especially the smaller ones and especially those in neighborhoods that didn’t have many condos to begin with. Those buildings are most likely to have a higher percentage of unit owners with little or no equity and will quickly go underwater. Of course flippers will probably ensure that we all get a little taste of this misery.
If ever a bunch of Housing Victims ever deserved assistance, it’s people who bought honestly and within their means, but are facing financial destruction, and possible loss of everything they own, because their condo building has enough units not paying assessments that they are buried under utility and repair bills that are rightfully owned by the owners of the foreclosed units, which would be the financial institution that foreclosed and now owns the unit.
Many of these people will never be made whole, but all most of them ever asked was to be able to pay for their units and live in them, without being saddled with other owner’s bills.
That the owner in Bronzeville was able to collect, even after much difficultly, makes it clear that the owner of the unit is responsible for assessments, utilities, and repairs, and there should be no question of the association being able to speedily collect money due.
The situation in Miami, as well as Chicago’s South Loop, is absolutely grotesque. Are the laws so loosely written that the owners of these units can duck their responsibilities in this fashion. Why is not the developer and/or financial institution who owns the foreclosed units being made to pay? Looks like it is very easy to delay and duck until the association just gives up, because the condo owners don’t have the money for extended legal battles and are up against adversaries with very deep pockets and platoons of lawyers at their disposal.
That means we urgently need legislation that will make the responsibility for these fees clearer, and streamline the process of collection.
Laura – They can always collect when the unit is sold. In Florida, there is a law that limits the amount of back dues that a unit that is foreclosed upon has to pay….now that REALLY kills people there. If I recall it is 1% of sales price or 6 months dues…something like that. OUCH!
Laura,
I’m not an attorney, but I believe if the flipper goes into bankruptcy that they are absolved of their financial responsibility to the unit. In that case it should be the lender. The developer isn’t on the hook unless you’re talking about a special assessment due to faulty design or something like that.
Oh and HOA dues owed by a flipper prior to bankruptcy would be absolved as well. The bank wouldn’t start to accrue HOA dues until they have title of the unit and they would be responsible for those.
The developer would be on the hook if it stills owns units that have not yet been sold, as in the case of new high rise buildings that are literally “see-throughs”, because they have so many vacant units.
I was in Miami in Feb and was stupefied at the number of empty high rise condos everywhere, mostly with still more being constructed alongside them. In the 900 block of Biscayne sat four massive, gleaming luxe highrises, 50 to 60 stories each, each with 500-650 units, and at 8PM on a weeknight, only 20 apartments had lights on between all 4 buildings. I then wondered what it was like to be one of those owners, surrounded by all that unsold inventory and wondering when the developer was going to get foreclosed on and leave me in the lurch for all those utility and maintenance bills.
This turns out to be just the situation for many people here and there. There was already a major developer foreclosed on the northwest side, and more are sure to follow.
Until those foreclosures are processed, you might have some pretty impressive bills piling up on a large structure. If you are 40 people in a building with 180 other unoccupied units that have not been paying assessments, that means the accumulated utility and maintenance bills are pretty staggering. Just wait till you try to collect them from the bank that now owns the foreclosed units. You’ll have lots of time to become insolvent before you collect a dime.
It’s gotten to the point now that when I have a buyer interested in a condo we have to really go over the financials and minutes to make sure they don’t have a collection problem. A unit doesn’t have to be in foreclosure yet to be the source of collection problems.