Shoreline Towers condo association plans to be a buyer in foreclosure market -- chicagotribune.com: "At Shoreline Towers, a 378-unit building along the lake in the city's Edgewater neighborhood, where there's recently been an average of 12 to 14 foreclosures at any given time, board members are trying a new tack. If they receive the required 66 2/3 percent majority approval needed from owners, the association will buy up to eight foreclosed condos during the next two years and rent them as apartments until the housing market improves. Then they'll resell them."
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Condo association turning itself into landlord...thanks to Brian Flood of UIC's Public Affairs Office and Fred Pilot for this link.
9 comments:
Our single family HOA in MN has gone down a similar path. But rather than purchase a foreclosed property (which was proposed), they have sold lien rights to "investors".
Both of these options were being proposed WITHOUT membership approval - which some have questioned the legality of.
Do the CC&Rs allow such a business venture with members' money? I have my doubts.
It also seems doubtful that this kind of business activity could be consistent with the nonprofit corporation law and the articles for the association.
What is different about this BOD and associate tactic, than filing fictitious lawsuits, and/or assessments placing fines, leins and fabricated attorney fees against the property and foreclosing without notice. seems like business as usual, for some groups, just a new opportunity.
Many investors have strong feelings about real estate either for or against. It's better to stay only in those markets that are liquid that are easy to understand and deal with, and that offer an attractive compromise between risk and reward.
The HOA industry (CAI) were successful in getting legislation passed in Texas this year to empower HOA boards to assign the association's lien rights in condominium associations to third parties. The parties behind this, of course, will be bilking the condominium association with outrageous loan terms that the remainder of the owners have no power to vote on, reject etc. The board will have secured loans for the association using the owner's property. To service this debt, the condominium association will be hindered by the assignment of lien rights.
The organizations behind this are the same ones that tend to engage in the "priority of payment" scam.
This assignment of lien rights is one of the newer trends that CAI-types are trying to pursue in state after state. CAI often represents the most insidious, unscrupulous group of practitioners in the debt collection business. They create debt out of thin air at their whim and then threaten the homeowner with foreclosure lest the homeowner pays the CAI vendor. The assignment of lien rights against the owner's property in return for lending money to the association is more of the same. As this practice is abused (that was the intent behind its promoters) it will certainly enhance the demise of condominiums in Texas. The feds lending restrictions assume that the condominium has the power to collect from the owners. However, if the condo association can only collect pennies on the dollar then perhaps the feds will modify condominium lending restrictions to prohibit lending in any condominium engaging in this practice.
This story doesn't surprise me. While nominally "homeowners associations," condos developments are more accurately described as apartment associations. And apartments have traditionally been seen as rentals.
The line between owning and renting can be very fuzzy in condos, which is why condos resist efforts via secondary mortgage lending regs and their own CC&Rs to straight jacket them into owner or rental occupied dwellings.
RE Don's comment:
The state statute MN515B CIDs allows the board to sell lien rights without membership approval.
The other options discussed("partnering" to purchase homes, buying the home outright) hopefully would have had legal challenges under our NonProfit statute and MN515B.
This "idea" was proposed by a former board member who also happens to be a property mgr and also wanted exclusive rights to the purchase - InsiderTrading anyone??
In addition to any restrictions and/or prohibitions in an association’s governing documents (or in any state statute whether property, corporation or association), Shoreline’s board’s proposed plan to become a buyer in Edgewater’s foreclosure market would seem a conflict of interest and likely breach of fiduciary owed the +/- 370 non-board members of the association.
In addition to the “required 66 2/3 percent majority approval” from the association’s members, what, if any, prior approval rights might a mortgagee (its loan documents) have with respect to the $2.5 million encumbering any creditor’s (present and/or future) security interest in Shoreline’s common areas?
The scare tactic mantra "...protect(ing) our property values" will go a long way in getting approvals.
People are generally dumb and will take the easy way out ("But, they told me it was a good thing.") when trying to understand something they don't know -vs- becoming an informed consumer/owner.
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