Condominiums Losing Out To Foreclosures

Posted in Foreclosures, August 8th, 2008 |

Condominium owners were fast losing out their units to foreclosure that was in a rampage throughout the country for the past two years. The condominium associations were now feeling the heat of the foreclosure crisis and the crunch in their pockets. Real estate investors and owners of houses always depended on these associations who were responsible for the overall maintenance of their buildings. They took charge of property insurance, regular maintenance of utilities, landscaping, and upkeep of other shared amenities.
The Community Associations Institute, based in Alexandria, Va., was a non-profit making organization of homeowners associations, which declares the problem to be a significant one. In the United Nations, some 300,800 homeowner associations manage approximately 24 million housing units and therefore the problem is a gigantic one for them when the majority of the house owners obliged to pay their dues to the association fail to do so for a number of reasons.
The main reason for the default in dues was attributed to the foreclosure crisis. House owners having received a foreclosure filing had lagged behind in mortgage payments, sometimes sought to put off their dues to the associations as an aftermath of the foreclosure crisis. For the associations that have formed recently, and had yet to build up their reserves were the worst hit. Shortfalls were more common as it was expected that they were exposed to owners suffering under the recent housing mortgage and sub-prime lending morass that was rocking the country.
According to David Swedelson, a partner at Swedelson & Gottlieb, a law firm in South California a law firm that represented community associations observed that the older associations that had not set aside reserves for rainy days, budgeted for bad debts and regular maintenance of common-area, were also in for trouble. Associations were bound by State laws and could not abandon their obligations.
The misconception among associations, as pointed out by Muller was that the association had ownership rights of an individual unit after a Foreclosure. In fact it takes title to the property subject to the first mortgage. Associations were loath to foreclosure a unit that offered less value than the borrower’s mortgage, but it was thought to be a necessary step in re-negotiating a deal with the association that might avoid a bank foreclosure where the owner stops paying the mortgage and the lender willing to accept a deed to the property from the association. The buyer was also liable to pay the backlog of the prior owner’s dues.