Condo Units See High Foreclosures
Ft. Lauderdale, FL-Mounting foreclosure-related financial pressures are resulting in increased budgetary restraints and failing property values in community associations across the state of Florida, according to results of a recent survey of the state's condominiums.
In the report "Community Associations Face a Perfect Storm: Foreclosures, Budget Shortfalls and State Mandates," nearly nine in 10 respondents (86%) said they expect foreclosures, delinquencies and revenue shortfall problems to either increase or remain unchanged in 2010.
"They are really feeling the pain right now due to the huge number of folks that have just walked away from their units, especially with the newer condominiums. There are associations in Florida where in almost 50% of the units people have literally walked away," said David Muller, co-executive director of the Community Association Leadership Lobby, which conducted the survey on Community Association Financial Stability.
"They've stopped paying their mortgage, and in turn, they've stopped paying their assessments. That's 50% of the association's budget that isn't coming in. It's creating an absolute crisis."
A high percentage of respondents (91.4%) expressed support for legislation aimed at increasing the amount of past-due assessments a foreclosing mortgagee or bank is required to pay associations. This demonstrated a sharp difference with a Florida Legislature that failed to act on just such proposals during the 2009 legislative session earlier in 2009, said Mr. Muller who is also a community association attorney with Becker & Poliakoff PA.
Associations look at their budget and try to cut back as much as humanly possible. Typically they are doing the one thing they can do to survive, which is to adopt a special assessment or increase assessments for the following year. "That has a snowball effect. A lot of times, especially in Florida, when a large portion of the population is on a fixed income, if you raise assessments, then you are potentially increasing the possibility for them to fall into foreclosure."
More than two-thirds of respondents (68.3%) reported that in the past year there has been a rise in the percentage of units/homes in their communities that are more than 60 days delinquent in regular and special assessment payments.
"All the investors from 2004, 2005 and 2006 are typically the first ones that walk away, not the people who actually live there. Then as this crisis has unfolded, you are seeing more people that live there who weren't investors," said Mr. Muller.
Nearly two-thirds of respondents (60%) said budgetary gaps caused by foreclosure-related delinquent assessment payments have led to increased assessments in their communities over the past year.
Another two-thirds of respondents (63.6%) say new legal mandates from Tallahassee have forced them to upgrade or retrofit certain building or structural components in the past two years, even as foreclosure- and delinquency-related budget shortfalls have kept nearly as many (57%) from being able to carry out major capital improvement projects for upkeep or repair of their buildings.
"There is no safety valve now. Many of these units have plummeted in value," described Mr. Muller. "Coupled with the fact Florida got hit with the hurricanes a few years ago, and we've seen an increase in insurance rates, and now you throw in this foreclosure crisis, it's really devastating."
Almost half (45%) of respondents said notably fewer unit/home owners are now willing to volunteer to serve on the board or committees in their communities because of the legislative changes over the past several years to Florida statutes governing community associations.
"It really struck me that almost half are finding it harder to find people to volunteer for the boards. Legislative changes have increased the workload. These associations require hard-working volunteers," he said.
For these community associations, the best-case scenario is to have the person who is having the financial difficulty stay in the unit and continue to live there. Where these associations are getting hurt is when the first mortgagee forecloses and then the cap comes into effect and they don't get paid all the assessments coming to them.
"If the person continues to live there and works out their issues with their first-mortgage holder, whether it's a reduction or whatever it might be, the association will continue to get paid by that person. It's a win-win for everybody," he said.
"The real key is to identify who is a legitimate candidate for a mortgage modification and who is simply an investor who has walked away and has no intention of doing anything with the property. That's the big struggle going on in the country right now."
In the upcoming 2010 legislative session, a bill will be filed promoting purchasing condominiums in bulk. "It will make these bulk properties in distress more attractive to investors because it will minimize the warranties the purchaser en masse will have to extend. That is a thought to change the laws to make purchasing in bulk more attractive to a potential investor. Hopefully, it will be passed," concluded Mr. Muller.