Since the housing crisis began five years ago, much of the focus has been on the hundreds of thousands of delinquent borrowers and the banks that have foreclosed on them. However, some banks are now seeing themselves threatened with foreclosures.
The threats are coming from hundreds of homeowners and condo associations that say the banks owe association dues as a result of their foreclosures on borrowers who have stopped paying their mortgages.
One Miami attorney, Ben Solomon, has been at the forefront of holding banks responsible for the condos and townhomes they’ve taken over. A partner at Association Law Group, Solomon represents hundreds of condo and homeowners associations whose members believe they have been left with no other choice than to foreclose on banks for not paying dues and other fees on the properties they’ve repossessed.
Responsible Under Law
Under Florida law, once a bank forecloses on a property, it is responsible for any unpaid fees up to 12 months before it took possession, and all fees from the time of taking possession until selling the property.
“These associations are not-for-profits. They have lean budgets. They’re not out there spending dues on parties,” Solomon said. “These dues go to pay for trash removal, water, insurance, safety — critical expenses.”
Don Gonzales owns a townhouse in a community in Homestead, Florida, where Solomon recently took JPMorgan Chase to court in an attempt to recover $20,000 in back dues stemming from units on which it had foreclosed.
He told CNN, “We haven’t had our blacktop resurfaced for years. It looks terrible. We have palm trees where we used to have the coconuts taken off. It’s a safety issue, but we can’t do it now.”
He added, “I own two properties and it really ticks me off when the banks don’t pay their fair share. Everybody else has to make it up.”
Higher Dues, Special Assessments
Solomon’s firm represents associations throughout Florida that levy monthly dues ranging from $150 to as much as $3,000 for a penthouse. He said the monthly dues on a unit average about $300, and most delinquent owners owe about $10,000 in back dues. Solomon said that associations are forced to make up the losses by increasing the dues for other residents or instituting special assessments.
In Pembroke Pines, Florida, CNN reported the Southbridge Homeowners Association is owed approximately $1 million by several owners, most of it by banks that took possession of properties after foreclosures. Pembroke Pines has had to increase maintenance fees from $145 to $260 a month, according to the association’s treasurer, Marc Lebron.
Solomon explained that before the housing crisis, it wasn’t uncommon for an average of five to 10 percent of residents in a condo building or townhome development to be delinquent in paying their dues. However, now that number averages 20 percent, with some associations seeing delinquency rates as high as 50-60 percent. At that rate, he said, associations simply cannot absorb the losses.
Bank-Friendly Laws
In recent years, as banks have gone through the painstaking process of foreclosure and then trying to find buyers for the foreclosed properties – a process that can take several years – most of them have neglected to pay dues. Solomon said part of the problem stems from Florida law favoring banks over homeowners associations.
“Banks are very organized in lobbying [the Florida legislature[,” he said. “The associations don’t have the clout. The best they can hope for is to maintain the status quo [during the upcoming legislative session].”
Solomon said one victory for homeowners associations came last year with the passage of a law giving them the power to demand that the full amount of rent from tenants be applied to any delinquent dues. If rent payments do not go toward delinquent dues, tenants may be evicted. The law stemmed from numerous instances of owners renting out their properties and withholding association fee payments while still pocketing rent money.
‘A Million Excuses’
Solomon said he sympathizes with residents who are facing foreclosure as a result of a job loss or some other crisis but has no sympathy for the banks. Once Solomon begins the foreclosure process, nearly all of the banks eventually pay the bills.
“The banks have a million excuses for not paying the fees. ‘Oh, we lost the paperwork.’ ‘Oh, we thought that was paid.’ They just don’t want to. It’s a business reason. I get that,” he said.
Solomon said many homeowners associations are in a position where they have to take legal action because of the high number of delinquent units. He suggested association directors consult an attorney rather than waiting – and hoping – they will receive delinquent dues when the banks eventually sell the foreclosed condos and townhouses. Experience has shown him that often does not happen.
“A lot of groups have gotten bad advice. Many are on a respirator financially. They have to stay vigilant and keep on their toes,” he said.
Nick Baker ([email protected]) writes from Washington, D.C.
