Ruling may help homeowner associations
Any Historic City News reader that has either owned a condominium, or a home in a community with a mandatory homeowner association, understands the importance of paying the monthly maintenance assessment on time.
That maintenance fee represents the total costs required to pay for things like insurance on the common areas — as well as their upkeep and repair, landscaping, utility bills, pool maintenance, management and other professional fees. The actual bills are totaled and divided by the owner’s share of interest in the common elements in the community and approved, every year, by the Board of Directors at an annual meeting of the homeowners.
Like most things in life, everything is fine until something goes wrong. In the declining real estate market in St. Johns County, we see homes that sold as recently as five years ago for $250,000, today being sold, in foreclosure, for as little as $175,000 — or less. Around the state, things are no better; in Miami-Dade there are more than 115,000 open foreclosure cases with 7,000 more being filed each month.
So, what happens to owners in homeowner associations if one or more of the owners can no longer afford to keep their home? The mortgage lender takes the property back in foreclosure, right? The answer is yes, with a caveat.
When the bank takes title to the house, they assume all of the owner’s obligations going forward — including the obligation for the apportioned share of the maintenance fees. Now, this becomes an additional burden and monthly expense to the bank.
In the meantime, the association is trying to pay its vendors their monthly charges and when financially distressed owners stop paying their mortgage — they tend to stop paying their monthly maintenance fees. You would be surprised how quickly a financially healthy homeowner association can go broke — keep in mind, the association operates as a non-profit entity. It serves largely as a conduit for individual owners to pay their portion of bills incurred in common with all of the other owners.
So, the caveat I reserve is not WILL the mortgage lender take the property back but rather WHEN they will do it. Because of a recent ruling in south Florida, mortgage lenders may have seen the days of delaying the foreclosure process to avoid financial responsibility for these distressed residential properties coming to an end.
Florida law says that mortgage lender’s liability is capped. They are only required to pay 12 months in past-due homeowner association fees or the lesser of six months or 1 percent of the mortgage, in the case of condominiums. Once they take title, they’re liable for maintenance and attorney fees plus taxes.
With all their “upside-down” mortgages, mortgage lenders don’t want to take on that additional liability until they find a buyer. So, they’re simply not pursuing the cases they’ve filed.
That stalling is crippling many homeowner associations.
In a process known as a “reverse foreclosure,” a Miami-Dade Circuit Court judge has forced a bank to take title to a property from a homeowners association.
“It’s new, and it addresses what we think is a huge problem in Florida,” according to published reports from attorney Ben Solomon who represented the South Miami-Dade homeowners association in the case.
When the owner stopped paying their monthly maintenance fee, the association foreclosed on the home, however, because of the bank’s lien, they could not sell it. The bank had foreclosed but hadn’t pursued the case for a period of 2 1/2 years, leaving the association stuck with a home — and no one paying dues.
Solomon said his firm is telling the judge that as the defendants in the bank’s foreclosure proceedings; they want a summary judgment — against themselves. Next, they request an immediate sale date; waiving their rights to a waiting period. Reportedly, Solomon’s firm has filed another 82 similar “reverse foreclosure” requests in courts around the state.
The association in this case has 3,000 homes and owns title to about a dozen of them through foreclosures, Solomon said. The reverse foreclosure can only be filed after a homeowner is out of the picture and the home is legally the property of the homeowner association.
“That waiting period protects the consumer, but banks are taking advantage of the judicial backlog, and then in many cases they are canceling the sale date and resetting it”, according to Solomon. “What we did was tell the judge, we don’t need more time.”
HSBC Bank USA, which acted as trustee in the case, declined to comment.
Circuit Judge Jerald Bagley granted the homeowners association motion, and the title was awarded to the bank the same day.
“We’re not saying they need to complete a foreclosure more quickly than normal,” Solomon said. “But there’s no good reason why that lender has taken 2 1/2 years to foreclose on this particular unit.”
Attorneys familiar with foreclosure cases said the tactic was innovative.
Bill Raphan of the state condo ombudsman’s office in Fort Lauderdale said, “We get so many calls about these kinds of problems, anything that would provide some kind of relief for these associations that are in such dire straits would be welcome.”
Category: Community
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MIAMI BEACH, Fla., Jan. 27 /PRNewswire/ — Miami Beach City Commissioner Jerry Libbin today applauded the “reverse foreclosure” ruling by a Miami-Dade Circuit judge that forced a bank to take title from a homeowner association (HOA) of a property that had not been paying its assessments.
The HOA, which had foreclosed on the house but couldn’t sell it because of the bank’s lien, waived its right to the property. Now the bank, HSBC Bank USA, is responsible for paying future HOA fees and assessments.
“This is an important legal ruling for condo owners who are saddled with huge special assessments because greedy banks refuse to take financial responsibility for their reckless lending,” Libbin said. “I hope that the Florida Legislature heeds this ruling and finally enacts meaningful and comprehensive foreclose reform.”
Libbin is spearheading a state-wide campaign to protect condo unit owners from unfair assessments levied on them because of the residential real estate meltdown. Loopholes in state law have allowed banks to escape paying their fair share of condo association fees. This has forced tens of thousands of Florida condo unit owners in good standing to pick up the tab.
Under current law, banks can indefinitely postpone foreclosing on condo units that stop paying their mortgages and condo association fees. When banks do foreclose, they are only required to reimburse condo associations a small fraction of the delinquent fees owed — the lesser of six months’ of association dues, or 1 percent of the mortgage.
Worse, condo associations often have to sue banks to recover even these paltry amounts of delinquent fees. The result is that the remaining condo unit owners are burdened with sky-high assessments to make up the shortfalls, which in turn leads to a further increase in distressed units.
Libbin is organizing trips to Tallahassee this year for condo owners to lobby legislative leaders in person to enact reforms.
“Our state can’t afford any more foot-dragging and excuses from state lawmakers,” Libbin said. “The banks and banking lobby must be held accountable and pay their fair share. Our state’s condo owners, tax base and economy depend on closing these outrageous loopholes.”
Why would HOA forclosed on a unit ?, reading through the Florida Statue I see that legally when they forclose on the unit they become owners of the unit subject to first mortgage.
Are they liable to pay the maintnance fees every month since they now own the unit ? are the legally obligated to tell other tenants that the assciation now owns a home in the community >
I’m not a lawyer, so I can’t give you any legal advice. I am, however, a current and previous owner of a condominium, a former association board President and and I presently am licensed as a Florida Community Association Manager, and I can tell you why my associations would foreclose.
The reason is to force the banks who hold the first mortgage to step up and take financial responsibility for the cost of monthly maintenance instead of sitting on the sidelines and waiting for a buyer to present themselves — in this market, you could be waiting awhile.
Banks know that under current laws, they will not be responsible for more than six months worth of maintenance fees (12 months in the case of single family homes) regardless of how long they have constructive control of the property.
So, your question really applies to them — why should the bank foreclose when they would become liable to pay the maintenance fees every month? The problem is, they haven’t.
The association, on the other hand, has to spend the money represented by the maintenance fees every month — even when one or more of the owners doesn’t pay their apportioned share of those bills. Therein lies the rub.
The method suggested in this article is an effective way to force the banks to act at once and not on their own schedule; hiding behind their liability caps.
I agree with those who have written that the “reverse foreclosure” idea was a stroke of legal genius — if there really is such a thing!