We read this article in the    Daily Business Review -      July 22, 2008

Before you read this, let me make my point. Most Condo associations I know are in a healthy financial condition, are well managed and do not experience the kind of problems faced by those mentioned in this article. The story told here is about specific cases which do not convey the general picture. However, we must admit that the rate of delinquency in condominium fees payment is historically high, as is  the rate of mortgage delinquencies and foreclosures. This is a nationwide problem, and is accentuated in Florida due to overbuilding, real estate speculation, and all what we already know about the present real estate crisis. Condominiums are here to stay. Their legal structure and management are being improved by new laws and  regulations. Legislature has recently rewritten  them to address many issues. Abusive condo boards can still be a problem in many cases, as well as issues in condominium management. However, they are the exception.

 This is the text of the article:

                                                          Condo Meltdown

Desperate times call for desperate measures for condo associations

As bills mounted and revenue shrank, the board of Miami Beach's luxury
Bentley Bay condo knew it had to take drastic action.

Facing a spike in delinquencies and the need to pay the bills, the
Bentley's condo association opted to take a hard line with lenders
that took over units there - many from investors who went into
foreclosure.

In one instance, the condo association took legal action against a
lender that it said was dragging out the foreclosure process to avoid
paying maintenance fees.

Condos like Bentley Bay are increasingly resorting to such desperate
measures to collect enough money to keep their buildings operating.
It's also proof that even upscale condos in areas considered insulated
to a market downturn are feeling the pinch.

As more units go into foreclosure, communities - especially newly
built or converted projects - are struggling with rising nonpayment of
association fees. Beleaguered board members are ratcheting up legal
pressure on lenders who've launched foreclosure action against units
but are slow to take title to the properties - a move that helps
lenders delay taking on responsibility for condo fees.

Unit 212 at the Bentley was mired in a drawnout foreclosure process,
and fees were mounting. The cashstrapped condo association finally
asked MiamiDade Circuit Judge Daryl Trawick, who was overseeing the
foreclosure case, to force U.S. Bank to take title to the unit or
immediately start paying maintenance fees.

In his June 1 order, Trawick gave U.S. Bank, the trustee for Citigroup
Mortgage Loan, two choices: Don't foreclose and start paying
maintenance fees on a unit it doesn't actually own, or foreclose and
pay thousands of dollars in pastdue fees.

Even with the first option, U.S. Bank would have to eventually pay the
past due fees if it later foreclosed.

When a lender forecloses on a condo unit, it is responsible for six
months in past due maintenance fees or 1 percent of the mortgage.
Lenders are also responsible to pay maintenance fees for as long as
they own a unit.

The maintenance fees on Unit 212 are more than $1,000 a month - $807
in regular maintenance fees and $208 for a special assessment. Unit
212 had been behind in payments since September.

Condo boards are also moving to force lenders who aren't paying the
condo dues to auction off properties they've taken back. Other boards
are putting delinquent owners on a fast track to collection.

One option apparently not on the table for condo boards: bankruptcy,
since it's intended to help organizations that are swamped with debt,
not those suffering from large revenue shortfalls.

Newer condos and conversion projects are suffering the most because
speculators flocked to those buildings during the housing boom. But
now that the market has imploded, many can't afford their mortgage and
condo due payments. Those buildings are also more likely to have
borrowers who used exotic mortgages and adjustable mortgages that have
helped push more homeowners into foreclosure.

Older communities are hurting, too, because owners refinanced at the
time of easy credit, and now they can't afford higher condo fees and
adjustable mortgages that are resetting higher.

It becomes a vicious cycle, too, as condo associations pass special
assessments to make up for late payments, only to send more owners
over the brink.

When banks begin foreclosure proceedings against condo owners, the
units often end up in a financial limbo. U.S. Bank filed a lis pendens
- a notice of pending foreclosure - on the unit in September 2007,
according to MiamiDade property records. By May, the association was
owed $8,557 in condo fees, and U.S. Bank still hadn't taken over the
unit.

That's when the U.S. Bank was ordered to start paying. Despite the
ruling, the bank has yet to take action, according to I. Barry
Blaxberg, who represents the Bentley Bay. He said the condo plans to
ask the court to enter a judgment against the bank to collect the
debt.

Blaxberg, of Blaxberg Grayson Kukoff & Strauss in Miami, began taking
slowacting lenders to court six months ago and has seven similar
cases pending among different condo associations, he said.

"It shows the evolution of what is going on in the condo world," he
said. "Necessity is the mother of all inventions."

Historically, lenders have taken about four months to seize condos
from nonpaying owners. But as the foreclosure crisis worsens, lenders
are taking up to a year to take title of a property, real estate
experts said.

Colin Hendrick, president of Surfside's Carlisle On the Ocean, a
former apartment building converted to condos in 2004, is also going
after delinquent lenders. About 30 of the 115 units in Carlisle are
owned by banks or in the process of being taken over, he said.

Last month, the association began foreclosing on five condos owned by
delinquent lenders, said attorney Ralph Ruocco, with Glazer &
Associates in Hallandale Beach. The lenders - who are often trustees
for the bondholders who invested in a securitized mortgage pool -
include Wells Fargo, Regions Bank and HSBC Mortgage Services,
according to public records. His firm represents the Carlisle.

Glazer & Association last month successfully forced the sale of a
bankowned condo at the luxury Residences at the Bath Club in Miami
Beach. The sale helped the Bath Club's condo association collect more
than $32,000 in overdue fees from Wells Fargo, as trustee for an
investment pool that owned the mortgage on that unit.

The condo at the Bath Club sold for $1.45 million during the height of
the condo boom. At last month's foreclosure auction, the unit sold for
$438,100.

Ruocco predicts more lenders will lose properties to auctions because
they didn't make maintenance payments on time. He blames it on
disorganization rather than a lender's strategy to avoid paying fees.

"Their organization is horrible," he said. "Their left hand doesn't
seem to know what the right hand is doing. Banks' representatives call
me to ask me who the prior owner of a unit was because they are trying
to figure out who internally is responsible for talking with me."

Hendrick hired Ruocco's firm more than a year ago, when the Carlisle
was $300,000 in debt. At that time, only 30 owners were paying the
maintenance fees, Hendrick said.

"It was so bad, we had no idea how we were going to pay the electrical
bill," he said.

To cope with the shortfall, the Carlisle board has reduced the hours
of its maintenance staff, renegotiated contracts with service
providers, charged each unit about $3,000 in special assessments and
increased the condo dues, which average about $500 a month per unit.
The board is still dealing with a deficit of more than $12,000 a
month.

At the 358unit Shaker Village condo in Tamarac, more than 80 owners
are late with their monthly payments. Many refinanced during the
height of the condo market and are now struggling with mortgage
payments and the maintenance fees of $370 a month, according to
Bernice Klayman, president of Shaker Village association.

Hoping to pressure delinquent owners, the board is giving owners 45
days to pay up or else. The board is no longer willing to wait three
months before it moves to put a lien on a unit, Klayman said.

"We had no choice but to become more aggressive," she said. "It is
unfair to the people who are paying."

Klayman said the board is open to payment plans when owners want to
pay but are having financial troubles.

Monte Kane, a certified public accountant and adviser to condo
associations, said condo boards need to work with each delinquent
owner and draft payment plans that will work for them, before moving
to foreclose.

"Meet with the owner, try to understand their problems and have a
discussion on whether a payment plan can be conceived," said Kane,
managing director of Kane & Co. in Miami.

Condo attorney Donna Berger, with Katzman Garfinkel in Fort
Lauderdale, said she represents associations where nearly 80 percent
of the units have fallen behind. In one instance, a unit owner lent money to the association to help pay the bills, she said.

"Desperate times call for desperate measures," Berger said.Tom Roses, president of the Continental Group, one of Florida's largest property management companies, said his firm is trying to come up with ways to help its condo boards speed the collection process.
Continental is giving attorneys for boards realtime access to association books to quickly identify the owners who are late in their payments and began the collection process immediately, Roses said.

"We're [also] looking into bridge loans as a future option for our clients, but at this point, the idea is very much in its infancy," he said.

One tactic attorneys say won't help most cashstrapped associations is Chapter 11 bankruptcy, which is intended to keep creditors at bay  until a company restructures its finances.

"If it's an income problem, not an expense problem, then Chapter 11 won't work," said bankruptcy lawyer Arthur Rice, with Rice Pugatch Robinson & Schiller in Fort Lauderdale.

Bankruptcy works for associations that were victim of a onetime event,and need to restructure their debt as they recover financially. Chapter 11 won't help an association keep the lights on and the insurance current if fees are drying up, several bankruptcy lawyers said.

Under rare circumstances, some associations do turn to Chapter 11
bankruptcy protection.

View West Condominium Association in Kendall filed for Chapter 11 in February to buy time to collect a special assessment to pay a roofing company that worked on its roof, according to court documents. It also gives the association time to resolve a dispute over the contractor's work performance.

Douglas Snyder, View West's attorney, said the filling was not related to high delinquencies.

"If something can get fixed with Chapter 11, then bankruptcy is an option," Snyder said. "But if people aren't paying the maintenance, then Chapter 11 won't cure the problem."
 

 

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