About Short Sales

F.G. (NY): “Foreclosures are the top subject in the economic news today. Will it affect my condominium association too? What can be done?”

Dear F.G.: Foreclosures stalk condo owners like a predator looking for his prey. They are at an all time high in over 20 years, especially in the big cities. They are evenly split between builders going out of business and buyers that bite off more than they can chew. With people’s financial house in complete disarray due to general economic conditions or loss of income, condo foreclosures are becoming a fact of life. This is more common than most would have you believe.

If mortgage payments are not made by the current owner, a foreclosure may occur. The bank or lending institution will sell the unit at below market value. This is devastating if it happens to you.

The bank or mortgage lender has no choice but to get some money back through foreclosure because of the lack of payment by the owner. The bank or lender may allow someone else to make the payments and move into the condominium.

When too many condominium owners lose their units to foreclosure, condo associations feel the financial pain. That is bad news for homeowners who depend on them to take care of building maintenance, property insurance, utilities, landscaping, and other amenities that are shared in common.

Borrowing money from a bank or from the association’s reserve, reducing contributions to reserves, reassessing costs, renegotiating service contracts, and delaying capital expenditures are some of the actions that the Board of Directors can take. Obviously, these actions are not very palatable to the owners. Cutting back on amenities, increasing monthly assessments, and levying special assessments usually affect owners immediately.

The Board can offer payment plans or loans to the owners. They can waive late fees or penalties to help owners catch up on delinquencies. Some condo associations are assessing anywhere from $10,000 to $30,000 per unit to make up for the shortfall.

Just because the funds are inadequate, associations cannot abandon their fiduciary responsibility. They must continue to make an effort to collect delinquencies.

When a condominium association forecloses on a unit, the payments will cease. The bank or mortgage lender may accept a deed to the property from the association in lieu of a foreclosure. This could result in a faster sale of the unit to a new owner. The top priority is to get someone into the condominium who will pay the assessments.

Times have changed. Foreclosure stalkers (politely called investors) are not showing up in bunches at foreclosure auctions to snap up great bargains. We always used to hear about the great times when condominium properties were sold with profit to interested buyers and the associations recovered all their money – plus making a profit that financed the new landscaping at the front gate. Those times are gone!