Lee County condos linger in limbo | news-press.com | The News-Press: "Some lenders in Lee County are deciding to not enforce mortgage foreclosures they’ve filed — leaving the properties in a limbo that homeowners associations say could destroy some communities...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."
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The banks start foreclosure proceedings and then stop. That way they don't end up owning the unit, so they don't have to pay the six months of back assessments mandated by law, or any future units if it becomes their REO. The association, according to a Becker and Poliakoff attorney, then has no incentive to foreclose either, because the bank's lien has priority and they will end up with nothing. The net result of this practics: units that are abandoned and deteriorating, associations not getting their assessments, and a condo development in crisis.
7 comments:
Just another reason not to purchase a condominium. If this happens to enough units the bankers can collaborate to reclaim the entire condominium regime.
If the regime forecloses on a unit then who will be paying the assessments for that unit? This is like "treasury stock" for a corporation. Unlike a legitimate business, however, condominiums represent a shared liability not a shared asset for the "shareholders".
Tyler Berding, whose observations on condominiums have been featured on this blog, would probably describe condos as a depreciating asset that allows the shareholders to sell without having to fully recognize accumulated depreciation to the common area infrastructure.
I have been wondering if the housing market would start rejecting CIDs at some point. It may be that the bad news coming in now about condos could undermine the demand for a long time to come.
"I have been wondering if the housing market would start rejecting CIDs at some point."
I believe that many buyers already avoid CIDs. The problem is the lack of housing choice in so many areas because local governments mandate that new developments be CIDs.
Perhaps when enough banks get burned on CIDs, like in this instance, they will be reluctant to finance purchases in CIDs.
Likewise, when enough cities get burned with failed CIDs turning into urban blight areas like in this example, they will get out of the way and allow the free market to decide the mix of CID versus non-CID housing! I won't hold my breath on that one, though!
It is the buyer that holds the ultimate key. When more and more buyers tell real estate agents, developers, county commissioners, and legislators that they will not buy CID housing, perhaps finally this horrible social engineering concept, the CID, will die a well deserved death.
Yes--the buyers hold the key. People will put up with a lot if they think they will get a big windfall a year or two down the road. But if the gain isn't there, and the risk of major loss is apparent, the condo market could be irreparably damaged.
I think the lack of choice will keep CIDs around. I didn't want to purchase in a CID but there were no other reasonable options. (e.g., I could have paid much more to live much farther from work--no thanks.) I don't think the disasters we're seeing now will overcome the lure of extra $$ for the real governments (more taxes for not many services) or the lure of greater McProduct control for developers. I wish things would change. I just don't think it's likely.
Excellent point, Beth. With the exception of condominiums, this issue cannot be accurately framed as a matter of consumer choice vis a vis real estate.
Rather, it's a matter of public policy to privatize local government. In many parts of the US, homebuyers cannot avoid CIDs governed by mandatory membership HOAs any more than they can avoid public local government -- counties, municipalities and special districts.
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