UNPAID DUES AND FORECLOSURES --

AND NO END IN SIGHT!

An Opinion By Jan Bergemann 
President, Cyber Citizens For Justice, Inc.

Published October 26, 2010

 

Let's just face it, all association boards and/or owners can do about the financial disaster caused by unpaid dues and/or foreclosures is to try to control the damage. There is no solution that fits all -- no general advice that helps all. 

 

Ugly headlines in the media make us all only too aware in what a mess we are in on a daily basis. Headlines like "Why sloppy foreclosure process could ruin Florida" -- little left that isn't ruined yet -- and "Foreclosure probes growing" are only more warning signs on the horizon.

 

There are lots of suggestions to deal with the issue, but none so far really helps.

 

Don't forget: Most of these "solutions" are proposed by attorneys -- and attorneys get paid, no matter what!

 

There is a huge difference in approach between homeowners' associations and condo associations. The major difference: The amount of monthly dues! While many homeowners' associations charge annual dues between $100 and $600, many condo associations charge between $200 and $600 a month! 

 

We all know that the Florida legislature in its infinite wisdom changed the liability of banks (S1196) for unpaid dues to the lesser of 12 months or 1% of the original mortgage debt in FS 718, using now the same language as in FS 720. Everybody willingly ignored the fact that condos charge much higher monthly dues than HOAs. 

 

Let's say a bank forecloses on a home in a HOA that charges $200 annual dues. The original mortgage was $100,000. After the bank takes possession after foreclosure the HOA will receive $200 in past dues from the bank -- 12 months of unpaid dues. In many homeowners' associations it will take years before the limit of "one percent of the original mortgage debt" is reached.

 

On the contrary, condo associations charge normally much higher monthly dues -- often monthly the amount that HOAs charge annually. Let's say a bank forecloses on a condo unit that pays $200 in monthly dues. The original mortgage was $100,000. After the bank takes possession after foreclosure the condo association will receive $1,000 in past dues from the bank -- 5 months of unpaid monthly dues or 1% of the original mortgage. 

 

Please note that nothing in the statutes requires the bank to pay a dime in attorney's fees the association spent to push the issue. From numbers I have seen and read, most firms charge an average of approximately $4,000 from beginning of collection to foreclosure. Recently some lower numbers have been quoted. No matter how much, this is money the association will never recover. 

Remember the example of the HOA charging $200 in annual dues? That means that the association needs to collect dues for 20 years in order to make up for the cost of the legal fees. 

 

The right approach can often only be found in the numbers. It's just a matter of throwing good money after bad! 

 

Another suggestion -- mostly used for condo associations: Push for foreclosure, buy the unit at foreclosure auction and rent out the unit. It could work, but ...!

Many issues you have to watch out for: 

  1. Most association boards are ill-equipped to deal with rental issues and being landlords.

  2. The association is liable for all cost, including maintenance, repairs etc. -- and there are already lawsuits pending in California where associations are accused of rent-skimming (collecting rent without paying the mortgage).

  3. Even if the association has everything in place to rent the unit, it takes a renter to collect rent. The market is very renter-friendly and in many areas of Florida the number of units available for rent by far outweighs the number of folks looking for a place to rent.

  4. What about the associations that have strict no-rental policies? A unit owner may have lost the unit to foreclosure because the association stopped him from renting out the unit -- pointing at their no-rental policy? Many associations have strict rental policies in place. Chickens are coming home to roost?

If the association is unable to rent, more good money is being thrown after bad. Ultimate solution suggested: Use the reversed foreclosure tactic! [Associations using reverse foreclosure to get fees from banks] Often easier said than done, because even courts have a hard time figuring out which bank is the actual owner. 

 

How about the newest legal strategy, dubbed "The Mortgage Terminator" by attorney Ben Solomon from the Association Law Group? Solomon claims that this method, based on the claim that the bank purposely delayed foreclosure proceedings on the condominium unit, results in the association owning the property free and clear of the mortgage -- but most experts consider this just another way to recruit clients and create billing hours.

 

Whatever method fits your specific needs, please do not forget: It's a bad business decision to throw GOOD MONEY AFTER BAD MONEY!

 

No matter what method you chose -- or if you chose just to wait it out -- the losers are always the associations/owners -- courtesy of our legislature that protected special interest and the Community Associations Institute (CAI), the trade organization of attorneys and managers, which promoted a community association system with false promises. A failed system that now bankrupts many owners -- owners who are forced to pay for deadbeat neighbors and investors and for special interest exempted by the legislature from paying their fair share of dues!


NEWS PAGE HOME HOA ARTICLES