F.G. (NY): "I hope my condominium association will not be affected by a lot of foreclosures. There is so much of it in the economic news. Can anything be done?"



Dear F.G.: Foreclosures on condo owners are like predators stalking their prey. They are at an all time high in over 20 years, especially in the big cities. Builders going out of business and buyers that bite off more than they can chew share equally in foreclosures. Condominium foreclosures are becoming a fact of life because people's financial houses are in complete disarray due to general economic conditions or loss of income. This is more common than most would have you believe.

Foreclosures on condominiums occur when the current homeowner fails to make his mortgage payment, and the unit is being sold by the bank or lending institution at below market value. It is a devastating situation if you are in the position of having a condo repossessed or foreclosed upon.

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.

It can be very painful for condominium associations when too many owners lose their units to foreclosure. Building maintenance, property insurance, utilities, landscaping, and other amenities that are shared in common may be reduced. This is not good news for homeowners.

Condominium associations do have options, but most of them are not that palatable to the owners. Boards of Directors can borrow money from a bank, borrow money from the association's reserve, reduce contributions to reserves, cut back on amenities, reassess costs, renegotiate service contracts, delay capital expenditures, increase monthly assessments, and levy special assessments.

The Board may offer to waive late fees and penalties to help owners catch up on delinquencies. It is not unusual for condominium associations to assess owners from $10,000 to $30,000 per unit to make up for the shortfall. The Board can offer payment plans or loans to the owners.

There are some actions an association cannot take. They cannot abandon their fiduciary responsibility just because the funds are inadequate, and they cannot abandon the 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.

The time of selling condominium properties for profit to interested buyers has changed. Even great bargains do not bring the foreclosure stalkers (politely called investors) out in bunches at foreclosure auctions. The day is gone when associations recovered all their money - plus making a profit that financed the new landscaping at the front sign.