Homeowner associations often on outside

looking in on foreclosure cases

Article Courtesy of The 

By Steven Beardsley

Published May 2, 2011

LEHIGH ACRES — Rich Philhower knows the trouble a few vacant houses can bring a homeowners association.

President of Governor’s Run I, a sub-association of Lehigh Acres’ Westminster Golf Community, Philhower, 75, said his community is struggling to rebound from $18,000 in unpaid assessments from three homes over several years.

The debt puts him in a difficult spot — does he forego some maintenance or raise assessments for remaining homeowners? Neither option is attractive.

“Then you’ve got people who are upset because you increase the fees,” Philhower said.

Three years into the downturn, many associations find themselves in a similar position. Squeezed by foreclosures, they struggle while awaiting outcomes for cases that date back years.

Yet attorneys who represent the associations in court say they’re making progress, working beside banks — and occasionally against them — to see that homes are sold to new owners who can pay assessments.

They point to a December appeal court ruling that broadened their role in the courtroom, as well as a growing acceptance by lender attorneys.

“I think some of them are grateful we’re just helping them move the file forward,” said Chené Thompson, an attorney with Condo & HOA Law Group.

The extent of bad debt among local homeowner and condo associations is difficult to measure. Newer developments were hit hard in 2007 and 2008, as investors walked away in droves, and some communities saw delinquency rates as high as 30 percent to 50 percent, accountant John Stroemer said.

Other, more settled communities suffered when homeowners lost jobs and income in the years that followed.

“We have some associations where they’ve shut the pool heater off, they’ve shut the pool down,” Stroemer said. “They’ve shut down some amenities because they don’t have the dollars to make them run.”

For association boards, hiring an attorney can feel like chasing bad money with good, especially when cases linger. The goal becomes one of reducing losses, which means pushing cases toward a quicker resolution.

However, case law from 2009 holds that associations can do little more than prod a lender toward final judgment; because they lack the same standing as the lender in court, they can’t compel the banks to actually move forward with cases.

Attorneys instead act as both cheerleader and gadfly in the foreclosure process. As banks gather loan documents and prepare motions, they set the cases for the earliest status hearing or trial date they can find and check with lender attorneys to ensure they’re ready to proceed.

In doing so, they demand attention to neglected cases. Should a lender attorney fail to show in court, he or she can be sanctioned by the judge.

At a recent foreclosure hearing set by Thompson, Senior Collier Circuit Judge Daniel Monaco granted sanctions when a bank attorney failed to appear.

In another hearing set by Thompson, for a foreclosure in the Tarpon Bay community, Monaco balked when the lender attorney asked for an unspecified amount of time before proceeding on the case. Monaco gave her 30 days.

“The problem is the homeowners are accruing the costs,” he said. “If the banks don’t go forward, (homeowners) have to pay.”

Thompson said judges generally sympathize with the pressures faced by associations.

“What we’re also seeing is an acquiescence on the part of the bank and the attorneys,” she said, “because they’re seeing what we’re doing, we’re allowed to do it.”

A December ruling by the 5th District Court of Appeal in Daytona Beach gave associations even more leverage, when judges determined the courts, not lenders, have the final say in setting a date of sale for a foreclosed home.

Delayed auction dates by the banks had become a major problem for associations, attorneys agree. Sometimes the reasons were good ones — auction dates can be delayed if a bank wants to work with a homeowner. But many times the cases involved vacant homes with no owner present.

Thompson blames the delays on banks being overwhelmed and neglecting some cases.

Attorney Christopher Shields of Pavese Law Firm believes banks don’t want the responsibilities of paying assessments and selling a home in an oversaturated market.

“I would have to suspect the vast majority of the delays are due to the fact the lenders are not willing to proceed with the foreclosure sale as long as they could,” Shields said.

Associations are the ones that suffer, of course. But the December ruling means the organizations can request the court set a sale date for foreclosed homes in limbo.

The rewards of concluding a foreclosure case may seem meager for associations, given how long some cases take. State law requires a bank pay only the lesser of 12 months of assessments or 1 percent of the mortgage when it takes title to a home. But the greater reward is an owner who will resume paying assessments.

“That’s all we want,” Thompson said. “We just want the properties to get into the hands of a new owner who will love it like the members of the community do.”

Until then, association presidents like Philhower, in Lehigh Acres, will continue to face tough choices. Philhower’s board raised assessments in the most recent year.

“In an association like this, I cannot stop maintaining someone’s home just because they stopped paying me,” he said.