Foreclosed condos force fees on others
Speculators armed with subprime or adjustable-rate loans flooded the condominium market a couple of years ago. Now, many are in trouble, and other residents in their condo communities are paying the price. Dan Grech reports.
Condominium complex (iStockPhoto)
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Kai Ryssdal: The latest news from the housing industry is the same as it's been for months now: lousy.
And we got a double dose today. RealtyTrac reported this morning the number of homes headed toward foreclosure is double what it was a year ago, and the Standard & Poors/Case Shiller index confirmed home prices are still going down.
Much of the pain is being felt in condominium complexes. Speculators armed with subprime or adjustable rate loans flooded the market a couple of years ago and, well, you know the rest.
As Marketplace's Dan Grech reports, when an individual owner gets in trouble, the whole community pays the price.
Dan Grech: Celebration Point is a luxury condo development in Miami Lakes, Florida. It has a pool, a spa, a clubhouse -- and a problem: 15 percent of unit owners have stopped paying their monthly maintenance fee.
The fee pays for insurance, groundskeeping and 24-hour security. Now their neighbors have to foot the bill.
Albert Marques: It's not fair to those that do pay to subsidize someone that doesn't pay their fees.
That's Albert Marques. He lives in Celebration Point and is the condo's treasurer. He says the condo faces a $250,000 a year shortfall. To stay afloat, it's pulling $20,000 a month from an emergency reserve funded by residents.
Marques: I mean, it's money that could have been used to upgrade the amenities and as a result, is going to be used for bad debt.
Celebration Point is actually in better shape than many of Florida's 25,000 condominium associations. Up to 90 percent of owners in some condos aren't paying their maintenance fees.
Jeremy Resnick is with Upside Down Florida, a firm that helps homeowners who owe more on their home than it's currently worth. He said one client was just handed a bill for $40,000 to help cover an association fee shortfall.
Jeremy Resnick: In some communities, there's been an assessment for $25,000 and three months later, another assessment comes for the same amount of money.
This isn't just a problem in Florida. Resnick says 51 million people in the U.S. live under a homeowner or condo association, and nearly all of those communities face some financial fallout from foreclosures.
Resnick: In the bigger areas, in the Miamis, in the San Diegos, in the Phoenixes of the world, these are $50,000 and $100,000 assessments.
By law, unit owners have to pay these special assessments. Resnick says the danger is that huge assessments could tip even more owners into financial crisis.
Resnick: It's just a cascade effect of where, if you keep reducing the number of residents, you're ultimately going to raise the dues for everybody else that remains. And when people can't take it anymore, it usually means the death of the community.
Unpaid fees are a particular problem in new luxury towers and rental buildings that were converted to condos -- communities with a higher percentage of speculators and little emergency reserves to draw on.
Donna Berger directs the Community Advocacy Network, a Florida group that lobbies for condo associations.
Donna Berger: It started with the subprime market -- that people who really were on the edge were given these loans and moved into these communities without having the financial wherewithal to stay there -- and then it just snowballed from there.
Rather than raise fees, Berger says some boards are tightening the purse strings.
Berger: So maybe the lawn gets cut once a month instead of two or three times a month. Maybe the pool's not getting serviced. Some are even cutting back on security.
But dimming the hall lights or turning up the thermostat carries its own perils. Run-down common areas and cut-rate amenities can erode a condo's value.
Condo boards do have a trump card: they can foreclose on past-due properties. Marques says Celebration Point just took over the property title of one delinquent owner.
Marques: Given that we have 30 units that are just habitually not paying, we've only foreclosed on one, that doesn't give me any warm, fuzzy feelings that this is about to end any time soon. I think it's probably going to get worse before it gets better.
The board is waiting for the police to evict the owner.
In Miami, I'm Dan Grech for Marketplace.
