A paradise lost that can be regained, if Tallahassee acts now

Article Courtesy of The Miami Monthly Magazine

By Elena V. Carpenter

Published April 12, 2009

Not that many years ago, condos were a novelty – a few here and there, but definitely not the Miami signature they have become – ubiquitously dotting our skyline, defining our urban lifestyle.

Condos serve many tastes and functions – from the modest starter home to the comfortable retirement haven to the glittering mansion in the sky with breathtaking views of our sunkissed waters.

But there is trouble in paradise. Serious trouble. Fannie Mae’s recent – and chilling – edict that it will not accept loans for Florida condominium units within buildings where over 15 percent of the units are behind in their maintenance dues is a strong slap in the face to a state littered with condo foreclosures. As fewer purchase loans become available, more delinquencies follow, leaving condominium associations high and dry in the process.

More and more, as unit owners stop paying their mortgages, the corresponding condo association monthly dues are going the way of the mortgage – to hell in a heartbeat. However, the maintenance of the building, utilities, insurance and staffing, must continue.

Consequently, our massive condo canyons are seeing maintenance and upkeep being cut back or dangerously deferred, reserve accounts depleted even as responsible unit owners who are current with their mortgage and maintenance payments are being saddled with new assessments, and increased maintenance fees to cover for the deadbeats who are not. There’s just so much blood you can squeeze from a turnip.

A current statutory cap on the liability of banks/lending institutions that limits their exposure to the lesser of either 6 months of past due maintenance payments or one percent of the original mortgage amount, has only served to encourage already foreclosure-burdened banks to stall their filings. This has left many buildings broke and out in the cold, with delinquent units in limbo – not paying, not foreclosed, going nowhere fast.

And this Catch-22 is mushrooming out of control.

Many unit owners, finding themselves with doubled or tripled maintenance payments and assessments intended to cover the deficit created by other owners, are being pushed into foreclosure, unable to carry their weight plus that of many others who are not paying. A totally unbudgeted item for the most responsible of homeowners, who never envisioned having to bail out their derelict neighbors – month after month, with no end in sight.

Happily, there is hope on the horizon.

State Representative Julio Robaina – the one legislator who has consistently championed condominium owner and association rights in Florida – has proposed a bill (H1397) that specifically targets the critical proportions this new problem has attained.

It proposes to require lenders to pay (within 15 days after filing foreclosure actions) all unpaid common expenses and assessments which have accrued to the date of the filing. It also increases their liability from the current 6 month cap to 24 months of unpaid dues and fees immediately preceding the acquisition of title.

Yet the bill doesn’t stop here. It also creates an incentive for banks to foreclose on units with delinquent mortgages by allowing for lenders to prepay several months of condo fees and receive a 50 percent credit upon the sale of the unit. This in turn, should expedite foreclosures, sparking the potential sale of the unit and the building’s eventual stabilization, including its condo association and its paying residents. All of this necessary for recovery.

Understandably, the banking industry is opposing this move. They are burdened with non-performing loans and certainly don’t want yet another financial liability for maintenance fees. I feel for them, but not that much.

Condo association fees are meant to be paid by the unit owners – whether a bank, a corporation or an individual. If the owner is a bank, then it is responsible for the upkeep, protection and preservation of its asset, i.e., the condominium. The ones that should not be responsible for the protection of the bank’s asset are the remaining unit owners who face their own mortgage payments, their own maintenance dues and assessments, and also have to pay for the foreclosed or delinquent properties in their building. An expense that some may or may not be able to afford.

The passing of this legislation may well clear up enough condo association deficits and delinquencies to make condo units marketable again.

It may well solve the dilemma of buying a condo for a greatly reduced price yet ending up having to pay more in maintenance dues than the actual mortgage payment, rendering it unaffordable.

And it may well prompt banks to deal with condo association fees as they do property taxes, and insurance payments – with appropriate deposits up front, responsible for the disbursement to the insurance company, the tax department, and the condo association.

In these days when bailouts are de rigueur, legitimate condo dwellers should not be liable for their neighbors failed investments, financial travesties, or even their misfortune.

Now let’s hope our legislators in Tallahassee get it and pass the bill. This one could actually really be an economic stimulus.