Article Courtesy of The St. Petersburg Times

By Mark Puente

Published January 22, 2011

Anyone who stops paying a mortgage knows the bank can come after the home.

But homeowner associations foreclosing on properties?

That's right. HOAs are seizing more and more property as owners stop paying their monthly assessments.

Some are going a step further — renting out the seized properties to recoup the lost dues. And thanks to a new law, they don't even have to foreclose to collect rent in some circumstances.

Barbara Monahan, president of the Cove Association in the Mirabay neighborhood of Apollo Beach, sees the rental option as a win-win out of an unfortunate situation. Homeowner associations use the cash to keep the community and the home in good shape, and renters get cut-rate rent.

Monahan, a 27-year real estate veteran with Century 21 Beggins Enterprises, stressed that they warn renters that the bank could foreclose at anytime, forcing the renters to find a new home. Most renters, however, don't mind, she said. The risk is worth it in return for the cheap rent. Besides, many banks are moving very slowly on foreclosures, especially if they know a homeowner association has foreclosed and is renting out the property.

The banks say that the units will be better maintained if they are occupied.

"They don't want them on their books," Monahan said. "The banks know they are being taken care of."

Associations generally attempt to work deals with homeowners and only foreclose after dues go unpaid for more than a year or longer, experts say. That way they avoid the attorneys fees and court costs that come with foreclosing. By foreclosing, the associations are also on the hook for maintaining the seized properties — which are more often empty when the foreclosure takes place — and fixing any damage before renting them out.

Banks are slow to foreclose on many properties because they become responsible for the association fees, experts said. But initiating a foreclosure or being granted the title by a judge does not allow the associations to sell the properties. They can't sell because of the bank's original lien, which still must be satisfied.

A Florida law enacted on July 1, 2010 allows homeowner and condominium associations to seize rent from tenants who rent from delinquent owners — even before foreclosing.

After obtaining a court order to seize the rent, the associations can collect what is owed, said Tampa attorney James De Furio, whose practice is devoted to associations.

"It is an attractive device to collect money," he said. "We're doing a lot of this now. It seems to be successful."

There's no data on exactly how many properties are seized by homeowner associations, but experts say the numbers are climbing.

President William Rizzetta stressed that buyers should carefully examine records when buying property in associations and request financial information from the sellers. Homeowner associations acquire foreclosure rights when owners sign purchase agreements to buy the properties.

Most buyers are not aware of that, he said.

"Read your documents," he said. "You're signing them."

All associations are looking at ways to save money and trim expenses in the wake of the foreclosure crisis, Rizetta said. Foreclosing on properties and then collecting rents helps make sure they have enough money to provide a level of service that keeps the remaining dues-paying residents happy.

Delinquencies have forced many associations to tack on special assessments each month and to renegotiate prices with vendors to maintain services in a community, said Heather Russel, a Rizetta manager.

Associations don't want to foreclose or become landlords and will devise payment plans with homeowners, she said. Property owners, she stressed, shouldn't ignore the monthly fees when financial issues arise. Monthly assessments still mount when owners abandon their properties.

"If you can't pay, call somebody," she said. Not calling is "the worst thing you can do. The associations are not the bad guys."

The Charleston Place Townhomes Association in Tampa initiated several foreclosures last year in the 82-unit complex after unpaid dues forced it to gut services. The group became more aggressive in collecting after multiple owners fell into foreclosure, said president Judd Tyler.

Some owners were renting out their homes and pocketing the rental payments, without paying down their delinquent dues or mortgages. The association won court orders that allowed them to seize those rent payments directly from the tenants, before the money wound up in the pockets of the delinquent owners.

The move enabled the group to restore services and return to a positive cash flow, Tyler said.

"It took away the cash cows," he said about the owners. "The owners have to walk away or deal with us."