Foreclosures hit Brevard condos, associations hard

Article Courtesy of Florida Today

By JOHN McCARTHY

Published February 3, 2010

Arlington Pines Townhomes in Palm Bay, the trash spills over the Dumpsters. The swimming pool water is a murky green. Shingles are falling from the mansard roofs. Water shutoff notices hang from a dozen doorknobs.

It’s a facet of the foreclosure crisis that is often overlooked, but one with the potential to drive homeowners associations to bankruptcy.

Even owners who have never missed a mortgage or maintenance payments suffer when others lose or abandon their condos. And it is a problem that perhaps 60 percent or more of condo associations statewide are facing.

“It has just been a nightmare,” said Arlington Pines resident Dawn Kelley.

Since property prices began to drop in 2006, many Arlington owners, the vast majority of whom rented out their units, have for all practical purposes walked away, leaving their townhomes vacant. Others continue to rent them out but haven’t been paying the $223 monthly association fees. Only 12 of the 50 units are current with their fee payments, said association board member Cheryl Cable.

Despite that, Cable is optimistic.

“I think given some time, we should be able to get this place up to speed eventually,” Cable said. “Our goal is to clean it up and have it a decent place to live.”

That might be easier said than done. It is unclear how many of the homeowners have stopped making mortgage payments.

Dawn Kelley, board member and resident at run-down Arlington Pines Townhomes in Palm Bay, describes her experience living there as a “nightmare.”

When their lenders do foreclose on them — a process that takes up to two years or more given the current backlog in the courts system — those lenders will only be responsible for six months of back payments or 1 percent of the original mortgage, whichever is lower.

While the problems at Arlington Pines might be extreme, foreclosures have been causing problems for “common-interest” communities across the country.

According to RealtyTrac, a leading aggregator of foreclosure information, lenders repossessed more than 66,000 condos nationwide last year. As of the Dec. 31, 113,000were somewhere in the foreclosure process.

In Brevard County, lenders took back 419 condos and townhomes last year, according to Brevard County Property Appraiser Records. RealtyTrac said another 568 were in the foreclosure process.

Those numbers may understate the problem, though.

Critics say given the poor market for condo resales in Florida and the cost of monthly association fees, banks are in no great rush to foreclose on condos.

Meanwhile, other owners must make up the shortfall in monthly dues, money that is used for such things as maintenance, property insurance and in some cases, utilities such as water and cable TV service.

“The lifeblood of those communities is assessments,” said Gary Poliakoff, a Fort Lauderdale attorney who is one of the state’s leading experts on community association law.

Jan Bergemann, president of the statewide homeowners’ advocacy group Cyber Citizens for Justice, is pushing for changes to state law that would force lenders to pay maintenance fees when owners don’t. “The people who are still paying have to make up for these bills. . . . The other people pay the maintenance for the bank’s collateral.”

In a recent statewide survey of association boards, 60 percent of respondents said they have had to raise assessments to make up for shortfalls from foreclosures and delinquent assessment payments.

These higher assessments, though, put additional financial stress on other owners, making it more likely that they, too, could allow their unit to fall into foreclosure or at least fall behind on their maintenance payments. This is especially true for condos or townhomes that are not the owners’ homesteads and that have lost much of their value in recent years.

In 2006, six of Arlington Pines units sold for $100,000 or more. In May, one sold for The most recent sale was for $40,000 last May.

According to Brevard County Property Appraiser Records, just nine of the 50 units at Arlington Pine are homesteads. Kelley said only 22 of the 50 units are occupied.

Tenants have been moving out “left and right,” said Tina Mathis on a recent Friday afternoon as she herself was packing up. “I don’t know why really, but we’ve been dealing with trash like that for months,” she said waving at the overflowing Dumpster. “And every month we get a notice that the water is going to be cut off. ”

Many condo owners and associations complain that owners continue to rent out their units even though they haven’t been paying maintenance fees.

“It is frustrating on all ends,” said Tina Derwitsch of some other unit owners at Country Woods Village in Rockledge. “They are collecting rent, but they are not paying anything.”

Derwitsch herself has been without a tenant for her unit since August, though she said she continued to pay the $237 a month association fee. The delinquencies have led to maintenance cutbacks, she said.

A tough market

The delinquencies at Country Woods have meant more than that to Derwitsch. They have prevented her from selling her unit, though she had a willing buyer within five days of putting it on the market.

That’s because it has become next to impossible to get a mortgage for condos or townhouses if their associations are not in strong financial standing, even for buyers with impeccable credit.

“It is not based upon whether the buyer is qualified, it is whether the condo is qualified,” Poliakoff said.

Ritch Workman, a Melbourne mortgage broker, said he doesn’t know of any insurance companies that are writing private mortgage insurance policies in Florida right now.
The Federal Housing Administration does offer mortgage insurance for condo loans but has tightened the standards condo associations must meet to qualify. And even in cases where buyers have substantial down payments, lenders might not be able to sell the loans on the secondary market for a year or more, if at all.

“If you have to hold this in your portfolio for a year, what do want, the riskier or less risky?” Workman said of the banks’ reasoning. “Most of the banks have chosen to just not to take on the riskier.”

Legislative agenda

Changes in Florida’s condominium laws will most certainly be a hot topic during this year’s legislative session, which kicks of March 2.

Roger Kesselbach, president of the Space Coast Condominium Association, said the organization generally begins working on its legislative agenda each December. This time, work for the upcoming session began last August. “We have to get the banks to accept responsibility,” he said.

Among the changes Kesselbach would like to see is one that would make it easier for associations to collect monthly assessments directly from tenants if the owners aren’t paying. Associations can do that now only by court order, an expensive proposition.

Among other changes the Legislature is likely to consider:

Allowing investors to buy multiple units without being considered developers and assuming a developer’s liabilities.
Making lenders responsible for more of the past due assessments when they foreclose on a condo or townhome.
Making banks repair damage — most notably mold — in repossessed units.

Workman, who is also a state representative beside being a mortgage broker, said these proposals could hurt condo associations rather than help them as it would likely make it even harder than it already is to get a mortgage for a condo. “Right now we are semi-crushed. We would be crushed, the condo market absolutely crushed in Florida, if we made the banks do this.”

Any change in legislation is likely to come too late to help Kelley, the Arlington Pines tenant who at one time had hoped to buy the unit she is renting. She said she is likely to move soon, though she managed to keep a lighthearted attitude about the matter. “I’m only 20-years-old and it feels like I’m having a mid-life crisis,” she joked.