If you’re facing foreclosure on your condo, the pressure probably started long before you were even in financial trouble. For many older condo communities, the effects of the 2008 recession never went away. These communities are faced with aging facilities in desperate need of repair, which, when coupled with declining cash reserves and stricter lending rules, have left many condo owners holding the bag in terms of supporting their facilities.
The root of the problem
Condo developments are run based on monthly fees assessed on member units. These fees are used to cover basic ongoing expenses and any required repairs to the community’s infrastructure. The effects of the financial crisis prevented condo owners from paying their monthly dues. Condo boards were thus required to increase monthly fees and levy special assessments just to cover shortages in their cash reserves, often letting critical repairs go uncompleted even as residents were squeezed by the unexpected fee growth.
Rising condo fees leads to more foreclosures
According to a report on the issue from the Washington Post, condo foreclosure rates are still high and remain well above the national average, which has fallen back to 2006 levels for other property types. Foreclosure processing times have also increased as lawmakers in many states have passed measures to deal with overwhelmed foreclosure processes.
In Florida, for example, the legislature passed House Bill 87, or the Florida Fair Foreclosure Act, in July 2013, which essentially speeds up the foreclosure process. The law was introduced as a way to help the state deal with its enormous backlog of foreclosures brought on by the Great Recession. The law also allows anyone with a lien on the property – including the condo association – to request expedited processing of a foreclosure proceeding.
Ironically, however, the law has led to even more of a backlog in foreclosure proceedings as banks and lenders struggle to comply with the new legislation and reporting mechanisms. In the meantime, condo owners are caught in the crosshairs of lending companies who seek to recoup their losses as quickly as possible and of condo associations strapped for cash.
New lending regulations further complicate matters
Condo communities have also been affected by the changes in lending regulations that occurred after the financial crisis. After the recession, the Federal Housing Administration (FHA) made its loan insurance guidelines much stricter. Whereas condo buyers used to be judged only on their own financial health to determine their eligibility for a loan, the FHA now looks at the financial stability of the overall condo community.
This means a new buyer cannot qualify for loan insurance if either of the following is true:
- More than 15 percent of the owners in their target community are more than 60 days delinquent with their fees.
- The community’s cash reserves are less than 10 percent of their overall annual budget.
As a result, many condo communities are no longer options for buyers utilizing the FHA’s new homebuyers program. This increases mortgage costs at these communities and limits the market for potential buyers – even as the number of vacant units increases.
All is not lost
However, relief is potentially in sight. The FHA’s rules for condo credentials are being relaxed, and condo boards are now required to complete financial training. Furthermore, Florida’s Fair Foreclosure Act placed additional requirements on lenders to protect homeowners from becoming victims of “robo-signing” and decreased the amount of time lenders can seek deficiency judgments after a short sale or foreclosure sale.
These measures help, but they may not be enough, especially in the short term. If you’re facing foreclosure on your condominium, it would be prudent to discuss your options with a skilled bankruptcy attorney.