Saturday, April 10, 2010

The Great Foreclosure Debate: Part III

The article below was sent to us by Mark Benson, a community association expert in Florida. His thoughts provide additional perspective on the continuing debate over assessment foreclosures and the effect of non-foreclosure policies on the remaining owners.

Unintended Consequences for Community Associations in Florida and Nationwide

Again we hear about the largess of the government putting a moratorium on foreclosures of the first mortgage.

On the surface, this sounds benevolent.  Now let's look at the realities.

1.  If the home is in a condominium, homeowner association or co-op, they are probably also not paying maintenance fees.  This means the other owners must continue to subsidize the mandatory expenses of the association.  

2.  The moratorium of mortgage foreclosures creates an ongoing obligation to the association that continues to increase with interest, late fees and legal fees.  These are extinguished when the mortgagee finally takes title. The condominium association will get reimbursed 6 months of maintenance fees or 1% of the mortgage amount, whichever is less.  A homeowner association will get reimbursed 12 months maintenance fees or 1% of the mortgage amount, whichever is less.

3.  This will increase the delinquent amount for each month’s payment missed plus interest and penalties to the extent it will be impossible for the homeowner to recover.

Typically, this is a minimal amount compared to what is owed and is compounded by delays in foreclosures.

An association may institute foreclosure and take title to the unit but the mortgage still has priority.  Therefore, if the association takes title and rents out the unit they may get the rent but the mortgagee will eventually foreclose against the association.

In order to accomplish this the association may also incur thousands of dollars of fees and costs that may not be recoverable. 

4.  There is no incentive for an under-water owner to make any mortgage, tax or maintenance fee payments since it may be years before they are foreclosed out of the property.

5. There is no incentive for a mortgagee to foreclose and incur attorney fees and then be stuck with a property worth only 50% of the outstanding balance due.  They have a huge backlog of property now and the courts are still jammed with pending cases.

6.  Since the Federal Government cannot decide what to do about the mess there is the impression the tooth fairy may leave money under the pillow of the institutions that created the chaos and forgive mortgage debt.

7,  Until then responsible homeowners will be assessed and penalized with higher fees to maintain property with declining value until it gets to the point where they can’t afford it and then they join the ranks of squatters waiting for government to also bail them out.

It is imperative associations overcome this roadblock and find a way to protect itself as the entity responsible for maintaining the assets of the associations and its members. 

Let's use the TARP (or whatever you want to call them) funds to alleviate the fraud perpetrated on community associations by the conspiracy to confiscate the value of every possible property with unwarranted, immoral credit seduction of millions of Americans.

By Federal law it can be ordered that community association maintenance fees are superior to mortgage liens.

This will have two positive results.  

It will stop the downward spiral of expanding bankruptcy of community associations and the members that are being sucked into the maelstrom by having to support ever increasing numbers of non-contributing members.

It will expedite and accelerate the title transfer of underwater properties thereby getting properties off the market that could, at the current rate, take over ten years to absorb.  

Mark R. Benson
4711 Harbortown Lane
Fort Myers, Florida 33919
Past Chairman of the Florida Community Association Living Study Council
Past Member of the Regulatory Council of Community Association Managers
Past Vice-Chairman of the Advisory Council on Condominiums
State of Florida Community Association Living
Study Council
Fort-Myers News Press Team Watchdog
County Court Mediator