I owned a so-called ‘sectional title’ apartment – the local name for an individually-owned condo – in South Africa, many years ago, and was head of the Body Corporate (what we called the association of owners). I still have painful memories of trying to get unit owners to pay their dues, suing those who fell more than a few months behind, and juggling finances to keep the building operating.
It seems that current economic conditions are having a similar impact on condo associations all over the US, and particularly in Florida. Reuters reports:
Florida’s condominium and homeowners’ associations are facing what experts call a trickle-down disaster from the property crisis. Dozens and perhaps hundreds of condo buildings have budget shortfalls as thousands of owners, under water on their mortgages or in foreclosure, stop paying monthly fees.
“I call it a death spiral,” Miami Beach city commissioner Jerry Libbin said. “It’s a catastrophe in the making.”
Nearly half of Florida’s 18 million residents live in condo or homeowners associations, communities where owners pay monthly fees for common expenses like cleaning, landscaping, pool maintenance and building insurance.
When a unit owner stops paying monthly fees, which can range from $150 in a small building to over $1,000 in a luxury tower, a condo board must collect money from other owners to make up the shortfall. Rising fees or special assessments, or levies, can drive other vulnerable owners into insolvency.
No one seems sure how many condo buildings are in trouble but the number of calls to Florida’s condo ombudsman could be an indicator. They are up tenfold in recent months.
. . .
Carol Housen, the board president at the Miami Beach condo where nearly half the units are in hot water, would talk about its problems only with an agreement that the address would not be published. It’s tough to sell a condo with a bad reputation.
Housen points out chipped paint on the concrete walkways, which haven’t been redone lately. Crown-of-thorns and bougainvillea plants are blooming but she wonders how they will survive with the landscaper visiting less frequently.
“Everything is not going to look as nice,” said Housen, a property broker. “We had an exterminator once a month. Now he comes once every two months. We’re not fertilizing the trees.”
The story of this building is a familiar one.
The apartments were converted to condos at the height of a boom that saw prices — inflated by speculation and fraud — double within four years, then tumble in the last three. A one-bedroom, 560-square-foot (52-square-meter) unit that topped out near $200,000 might now get $70,000, leaving owners drowning in debt.
Still, said Housen, it could be worse. She pointed to a nearby tower where she said more than 200 of the 244 units have liens or lawsuits pending.
Housen said an upscale building not far away — where units that once sold for over $1 million and are now priced below $500,000 — has 16 troubled apartments of 44 in the building.
The crisis could mean serious pain for Miami Beach, a resort town with 88,000 residents and 42,000 condos. If debtors walk away from their units, buildings could become derelict.
“I haven’t seen it yet, but I think we’re going to see it,” Housen said.
Condo advocates say banks are partly responsible for hobbling condo boards by being slow to foreclose on owners who have fallen behind.
Lenders don’t become responsible for an apartment’s costs until they foreclose and under current law, a bank is liable to pay only six months worth of fees in arrears, or 1 percent of the mortgage value, when it takes back a property.
Condo advocates say banks are deliberately stalling.
“There’s no doubt in my mind it’s done so they don’t have to pay the fees,” Rosa de la Camara, a lawyer with Becker & Poliakoff, a Florida firm that does condo legal work.
There’s more at the link.
I guess this proves the old, old saying once more: if your own economic survival depends on the economic health of your neighbors, you’re in trouble! After my experience with sectional title in South Africa, I vowed never again to own any property that was partly controlled by a condo or homeowners’ association, was subject to community levies and rules, or anything like that. This story tells me I was right!
Peter