Owners in condo associations are having to chip-in to pay for unexpected association maintenance, tax, and related fees when other residents enter foreclosure or are substantially behind in payments, The New York Times reported Thursday.
The Times cited the case of condo owners in a 43-story Miami, Florida condo having to ante up more money after 1 in 6 residents battled foreclosure. The additional charge: an additional $1,000 assessment and $50 more a month for cable and internet fees, on top of the regular $450 monthly maintenance.
Connecticut-based appraiser Lawrence Schmidt, not a realtor but a former 15-year condominium owner with extensive knowledge of the sector, told BloggingStocks Thursday prospective buyers need to fully-research a condo association's membership status, including record of tax payments of individual members, in addition to the standard evaluation of the condo association's maintenance fees, contractor services, and quality-of-life issues, etc. Co-op buyers must do even more research on the co-op's balance sheet, monthly budget, cash flow, outstanding mortgage, and other related financials, he said.
"Potential buyers need to know that when they agree to purchase a condo or co-op in an association, they could very well be liable and responsible for increased maintenance fees if members reach foreclosure," Schmidt said. While underscoring that laws vary by state and jurisdiction, Schmidt said there are remedies to recover money from those unable to pay or entering foreclosure "but the reality is owners in good standing will be liable for a major increased expense, for years."
A (financially) painful condo experience
Schmidt speaks from personal experience. He and his wife owned a condo in a 40-unit, Connecticut condo association prior to the previous housing recession. In about the fifth year of ownership, the housing market slowed and within a year 12 units were behind in maintenance payments and taxes. Five foreclosures occurred, and in the process, Schmidt and other good-standing owners were hit with a one-time $1,200 special assessment, and a $250 increase in monthly maintenance for non-paying owners' back taxes and fees. And all of the above was on top of the $1,700 mortgage and $500 maintenance the Schmidts were paying for their 2-bedroom condo.
"When it came to taxes, owners need to know the jurisdictions involved will have no mercy," Schmidt said. "They do not care that you didn't create the problem. The association gets the bill. You're legally 'the association' so it's your bill. And any non-payment affects your credit rating."
The association did initiate legal action to recover costs, but as is often the case, some foreclosed former owners "did not have a great deal of liquid assets," at the end of the process, and legal advice, as one knows, is not free. "It was like trying to get blood from a stone," Schmidt said. Some costs were recovered in ensuing condo sales, but the process took about three years to resolve. Schmidt's total bill for the ordeal? "About $12,000, including legal fees, but about a whole lot more in aggravation," Schmidt said.
Now a homeowner, and no longer a condo owner, Schmidt's advice to potential condo/co-op owners is timeless.
"Research who your co-members are thoroughly, because after you join the association their financial problems become your financial problems," Schmidt said.
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Reader Comments (Page 1 of 1)
5-15-2008 @ 3:46PM
B. Harrison said...
Now the ultimate risk of condo ownership is becoming a reality.
and while it will have a domino impact on the escalting costs of condo ownership, it is even more of a dire, almost unsurmountable problem for new condominiums.
The ONLY way for the inflated costs of the originally contracted parchase price for the condominiums that are in progress of being completed to be "adjusted, is for the entire project to go into bakruptcy. And what contracted buyer is going to 'close" on a contract for an anmount that is appreciabley higher, by perhaps 100%, of the current market value of the condo unit . . . AND have to pay property taxes on that inflated costs also? This simply is not going to happen.
those who have contracted to purchase a condominium are simply going to have to "wak away" and forfeit their deposits. And even if they were to close on the condominum unit, if the banks foreclsoe on the developers, then these unit owners are going to lose their condominums OR foace horrific maintenance, operational, and tax costs during the foreclosrue process . . . which is truly insurmountable for any one unit owner.
After the foreclosure and bankruptcy of the project, the problem becomes one of how, under all fo these conditions and potential risks, can these projects be "re-started and completed"?
It has become a virtual "catch-22" situation without any viable resolution. No new "bank" is going to provide financing to complete the building until a certain amount of new sales ahve been made; and who, in their right mind is going to take the potential risks of the attempt to complete the project might not wind up in bankruptcy ALSO.
Meanwhile, there are sure to be substantial bankruptcies amongst the orginal contractors, vendors, and suppliers . . . there certainly will not be any state mandated "builder's warranty., will there be?
The reality is that these condominium units will have to be virtually sold at "almost costs" to get anyone to take on the potnetial risks of exorbitantly high maintenance and oeprational costs, and the potential for a second bankruptcy.
If anyone has a potential viable solution to all of this, then they would be a miracle worker. The Developers have made, and werre set to make a horrific profits off of all of the high priced condos during the charade of a real estae boom . . . now it is questionable whether the condo market in metorpolitan areas like Miami, and Ft Lauderdale will recover within 5 to 7 years or longer.
It appears that the Developers helped to kill the goose that was laying the platinum eggs.
the question is how will the condo market in south Florida with over fifty (50) new condominiums during the last several years, EVER RECOVER from this disaster. It is a legal and financial nightmare unequaled in our history.
5-15-2008 @ 4:47PM
william lindblad said...
Mr. Harrison - you are right on the stick!!!
While you are right about your area, unfortunately it's not localized. While I agree most are in resort areas they are plentiful across the country. The problem remains the same. When these new units get devleoped they depend on at least 90% capacity to cover operational costs with the developer usually picking up the balance untill all units get sold. Obviously, this will not be the case given current economics and all the pitfalls that you have described will come to pass.
The last time this happended was ca. 1990 and the solution was the RTC. The estimated cost to the taxpayer at that time was between 100-120 billion, The major difference between than and now is that the amount of properties is at least 10 fold. It does not take rocket science to do the math and such a move would only cover the condo market. Congress is presently talking in this vein but I doubt that they realize how big this version is. I don't think that trying to peddle a multi-trillion bail out to the tax payer will be well received.
5-15-2008 @ 6:04PM
al coholic said...
When a few of your neighbors lose their condos and they are sold at fire sale prices it affects everyone's ability to refinance, since the comps become lower than the amount you owe.
A friend of mine is currently suffering this situation in Atlanta. She can't refi her bad loan because she paid 165K, owes 145K and so many units have been foreclosed upon that the comps are suddenly about 125K.