AND OWNING PROPERTIES
Published May 5, 2012
activity, as described, of condominium and homeowner associations
foreclosing for unpaid assessments is misleading.
This is a very expensive process and may not be cost effective.
The costs involved include, but are not limited to:
Association Counsel's fees and Clerk's filing costs, and Service of
Process in the initial action, between $1300.00 and $1800.00.
To perfect a foreclosure action the owner must be served with the
complaint. The costs
increase if the owners live out-of-state or if the association must
serve by publication.
In the event that the defendant/owner should retain an attorney and file
an answer and/or counterclaim the costs rise exponentially. Some cases
have taken years and the financial commitment of the association is
(3) The association attorney must prepare a rental or lease agreement due to the special circumstances not included in the standard lease form. Costs can be $250.00 - $525.00.
The State of
The association must obtain a rental license from the municipality in
which the property is located. In
It is a fact that the majority of foreclosed units are untenantable and
must be repaired to comply with code, appliances purchased and air
conditioning and heating units made operable or replaced. This can be a
significant cost. In
addition to these costs the association must comply with the Florida
Landlord-Tenant Act, Chapter 83, Part ll. Before entering into this
activity the board of directors each must read and understand the
association's obligations under this law.
The Association will have to place the advance rent and/or security
deposit in a separate bank account and provide the tenant with the bank
information and notice as to the location of the funds and whether or
not they are interest bearing and to whom the interest is paid at the
To locate a tenant the association must either advertise the rental in
local publications or list the unit with a real estate agent at a fee of
10%. The brokerage fee is based on the total amount of the rent for the
stated period and is paid upon execution of the rental agreement whether
or not enough cash has been collected at that time from the tenant.
Tenants must be willing to bring their furniture and rent a
property without knowing when they could be evicted by the mortgagee.
Some tenants will not pay rent after the first month or so and
the Association will be responsible for the costs of eviction (see #11
It is not known where a tenant could obtain renters insurance to cover
their personal property in the event of a casualty event.
The association will receive an annual Real Estate tax bill. Most
association attorneys will send the bill to the association and without
further thought, the association pays the bill.
The mortgagee is pleased to have this gift.
(11) When the mortgagee forecloses the tenant must be evicted if the tenant is not cooperative in leaving. Eviction costs, such as preparation of the claim, court costs of filing the claim, costs of service of process, attorney fees to attend the hearing; if an eviction Order is signed. A Writ of Possession is an additional cost for the Sheriff to execute. These costs are added to the association's list of expenses if the mortgagee did not authorize the interim rental of the unit. Anger may result in damages to the unit and the mortgagee may demand that the association repair the damage caused by its tenant during the pendency of a foreclosure action. Remember that the Association is included as a Defendant in the foreclosure complaint.
All projected expenses of this activity must be stated in the Annual
Operating budget with an estimated number of units per year to be
foreclosed, the projected annual income and net gain or (loss).
Unit owners should not be expected to fund the shortfall of a
board of directors' activity that results in
a loss of funds.
trying to sell units in condominium developments must be aware of the
2011, FHA has
temporarily allowed loans to close in a condominium complex as long as
the agency does not insure more than 50 percent of the mortgages.
Normally, FHA requires this percentage to be 30 percent, but the agency
has temporarily raised it to 50 percent. Condominiums with more than 50
percent rental units do not qualify for FHA financing.
At this time, PUDs governed by Homeowner Associations are not restricted in this way; but lenders do look at the makeup of the association by requiring a community information sheet. The numbers of vacant units, rentals and units owned by an association impact the lenders' decision to lend in a development.
is the responsibility of a board of directors to prepare a written plan
with all of the costs and requirements detailed before attempting a
foreclosure program. There are other methods that can be successfully
used to collect delinquent assessments and all associations should
investigate those before wholesale foreclosing.