A banking industry official said the lenders may sometimes simply be carrying out the orders of investors who actually own the mortgages, but others blame the banks for a trend that could cost neighbors and taxpayers dearly.

 

The problem is most acute in those condominiums already on the ropes since numerous owners have stopped paying their association dues because falling prices have left their units worth less than their mortgages. The same is true for some neighborhoods with homeowners associations.

 

That creates a downward spiral that’s hard to escape from, said Bill Davis, secretary of the condominium board at the 112-unit Renaissance on the Winkler Avenue extension in Fort Myers.

 

The problem, he said, is the property is left effectively with nobody in control of it. The borrower still owns the property but can’t sell it because it’s worth less than the mortgage.

 

Meanwhile, the bank doesn’t have control because it’s still not the owner and the condo board can’t file its own foreclosure to get back maintenance fees because the lender’s mortgage has priority.

 

“There’s no incentive for the condo association or homeowners association to prosecute its foreclosure when the lender is also prosecuting its foreclosure,” said attorney Kevin Miller of the law firm Becker & Poliakoff, a law firm that represents community associations statewide. “The association would just be throwing good money after bad.”

 

Miller said banks are not in a rush to push a foreclosure through to its conclusion, which is a sale on the courthouse steps at which the lender usually ends up taking the property back.

 

In part, he said, that’s because a bank that takes back a property is on the hook for six months’ back condo fees or 1 percent of the original mortgage, whichever is less. It’s a year’s worth or 1 percent for homeowners associations.

 

“They’re not too excited about taking possession,” he said, and sometimes postpone the sale or cancel it. “It is happening more and more.”

 

As a result, Davis said, the condo association is left with fewer funds to stay solvent and property values fall even more.

 

Florida Bankers Association executive vice president Anthony DiMarco said the banks sometimes are handling debt that is owned by investors who were sold bundles of mortgages by Wall Street investment bankers.

 

“It’s like a property manager who just collects the rent,” he said.

 

But Robert Podvin, executive director of the Community Association Institute, South Gulf Coast Chapter, said the practice can literally start to destroy a condominium project. He’s started to hear of instances in the past few months.

 

“The property is just left there,” he said. “Florida Power & Light shuts off the power, the water is shut off by Lee County. And what happens with no air conditioning is that mold builds up and it’s deteriorating totally inside these units.”

 

Eventually, Podvin said, even adjacent units in the same building can be affected by the problem.

 

“I really fault the banks,” he said, although some banks are behaving responsibly by making sure units on which they’re foreclosing continue to have air conditioning.
But others simply walk away.

 

In Renaissance, for example, in e-mail correspondence between Davis and John Thomas at Wilshire Loan Corp., Thomas states that “with regard to unit #105, at this time, we do not intend to enforce the mortgage lien solely for business reasons (the present value of the property is a concern for us relative to the anticipated cost of, and anticipated ultimate recovery from, enforcing the mortgage lien), although we reserve the right to do so in the future.”

 

Wilshire represents LaSalle Bank, a subsidiary of Bank of America, which owns the mortgage in question. Wilshire and Bank of America officials could not be reached for comment.

 

Lee County Clerk of Court records show that LaSalle Bank voluntarily dismissed the foreclosure — filed March 28, 2008 — on Nov. 5

 

As more properties fall into limbo, what will happen?

 

“That’s going to become a real interesting legal issue,” Podvin said. “It’s like they’re abdicating what I’d almost call a duty.”

 

While the phenomenon may be new to Southwest Florida, it’s routine in even harder hit parts of the country, Fort Myers-based mortgage broker Jeff Tumbarello said.

 

“That’s quite commonplace in Detroit and certain parts of Ohio,” he said. “I’ve heard of it up there, I’ve never heard of it here.”

 

Sometimes, he said, a foreclosed property is sold at auction in Detroit and nobody shows up to bid: not the lender and not any other potential buyer.

 

Cape Coral City Councilman Tim Day, who buys foreclosures, said he expected this to start happening and raised the issue with City Council about five months ago.

 

The danger is that homes with nobody in charge are potentially dangerous eyesores in a community.

 

“We’ve got a home at the end of Yucatan in Burnt Store sitting in an abandoned state” and half finished, Day said. “We tried to get the city to come and level the place. It’s blight. It’s a danger to kids playing around there.”

 

But the city attorney advised the council to not act because the city could be liable if the owner ever objects.

 

“People have rights, banks have rights and the bank’s not foreclosing puts us in a precarious position,” Day said. “What if that persons come back — are we responsible to rebuild what we knocked down?”