Condo Associations Get Tough on Fees � Atlanta Condominium Management

CORAL SPRINGS, Fla.—Three years ago, Claudia Pinchasson defaulted on two mortgages used to purchase apartments at Spring West condominiums here. The units have been turned into rental property, but not by Ms. Pinchasson or her lender. They are being rented out by the condo association.

Condo associations, which have been struggling as troubled homeowners stop paying their condo assessments, are becoming increasingly aggressive about finding ways to recoup unpaid fees. And they have lawmakers on their side.

Condominium Home

In Nevada, homeowners associations recently tallied a victory when state legislators quashed two laws that would have limited the amount of fees that the associations can assess on delinquent borrowers.

Florida’s state legislature earlier this month passed a law that makes it easier for homeowner associations to collect rent from tenants in delinquent units, with monthly payments going to the associations, instead of the units’ owners, until all unpaid fees are covered.

“Two years ago, there would have been a lot more complacency” about homeowners not paying dues, says Donna D. Berger, a partner with Katzman, Garfinkel & Berger, one of several Florida law firms that lobbied for the law. Now, “frustration over seeing people continuing to live in their homes for years without paying” or seeing condos sit empty for years without producing fees, has driven more associations to take action, she says.

Florida, with 60,000 homeowner and condo associations, is at the center of debate over unpaid fees. In many cases, questions have been raised about the rights of homeowners versus those of homeowner associations. The associations have the right to collect fees and assessments to pay for maintenance, utilities and other services, and now, they also have the right to take control of a unit and rent it out when fees on the unit go unpaid. But that right clashes with the rights of delinquent homeowners, who may want to rent out the units themselves and pocket the cash.

Ms. Pinchasson has charged, in a complaint sent by her lawyer to her homeowner association, that the group illegally took possession of her condos, and she wants all the rent on the two units—about $10,000—given to her. She says she is worried that with tenants in her units, she may be liable in case of an accident or other problems. “I just want the tenants out, and I want the bank to foreclose” so she doesn’t have to worry about liability, Ms. Pinchasson says.

Leaders of the association declined to comment, but in February, they filed to foreclose on Ms. Pinchasson’s units, citing unpaid association fees of more than $12,000.

Typically, associations let lenders deal with nonpaying members. That often meant waiting a few months for lenders to foreclose and resell the unit. But five years into the foreclosure crisis, buyers are scarce and banks are having more trouble foreclosing in a timely manner, due in part to challenges by some who believe lenders acted improperly when seizing property.

The time it takes lenders to foreclose has grown longer each year. Nationwide, residential properties are in foreclosure an average of 400 days, up from 151 days four years ago, according to foreclosure-data firm RealtyTrac Inc. In Florida, it is even longer, growing to an average of 619 days as of the first quarter of 2011, from 169 days in 2007.

The banks are “letting these properties sit, and it’s killing the associations,” says Steven F. Cohen, who runs A&N Management, a company in Boca Raton that manages properties on behalf of about 50 South Florida homeowners and condo associations. “We’re just trying to help these associations fight back.”

Mr. Cohen said nearly every association he represents has had an instance where they were forced to foreclose on a homeowner or ask a judge to appoint a receiver for the unit.

Until the new law, homeowner associations could seek a lien in court against a property, based on the unpaid fees. Now, associations can demand that rent payments on delinquent units be paid to the association simply by sending a letter to the tenant. If the association wants to evict a delinquent homeowner and find its own tenants, or find new renters for a unit abandoned by its owner, it must foreclose on the unit ahead of the bank and take title to the property.

At the Gulfside luxury condominium in Naples earlier this year, its condo association foreclosed on a unit with a $710,000 mortgage because its owners owed the association $19,000.

When a unit-owner stops paying, “you’ve got to stop the bleeding as quickly as possible,” said Ewing Sutherland, president of Gulfside’s owners association. The group has foreclosed on two of its 112 units for unpaid condo fees.

Tom Salomone, a Coral Springs real-estate agent, says associations’ foreclosing on units are problematic because they have no obligation to pay off the mortgage debt on the unit, and that might make lenders reluctant to make future loans on properties in that community.

At Ironwedge, in Boca Raton, its association recently blocked a short sale arranged by Mr. Salamone—in which he convinced the lender to accept a price lower than the debt on the house—in favor of foreclosing and renting the house out. Now, the house’s fate is in limbo, and it likely won’t be sold until the bank, which holds the first lien on it, decides to foreclose. “It’s an absolute mess,” Mr. Salamone said.


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