condo talk

THE HIGH COST OF FORECLOSURES

By Kay Senay

October 2008

B.U. (Arizona): “It seems that there are a lot of foreclosures in my condominium.  Isn’t that going to affect me too?”

Dear Reader:  When owners don’t pay their fees, everyone suffers. All owners are obligated by law to pay their share for the operation and maintenance of the complex.  Non-payment has consequences, foreclosure is one of them.

Several sad stories. A woman in Arizona was evicted from her home of 18 years after it was foreclosed because she could no longer pay her maintenance fees. An owner in California lost his home to foreclosure when he didn’t pay $600 in violation fines.  His unit, worth more than $300,000, was auctioned and sold to someone for $2,000, according to his attorney!  Another owner was foreclosed because he was late in paying fees due to an illness.

While most owners pay their maintenance fees as they are obligated to do, a rising number have fallen behind for various reasons.  Many condominium owners are older people and an increase in maintenance fees, dues, or special assessments is hard to come by when on a fixed income.

What are the consequences to the non-paying owner? The association usually has a Collection Policy that was approved by the board and is implemented by the board or the management company.  Normally the procedure is: 1) late fee added to owner’s account, 2) collection letter sent from the board, management company, or association’s attorney, 3) lien filed, 4) foreclosure initiated.  The owner can stop the collection action at any step in this process by paying the overdue amount and any fees connected to the collection action.

What are the consequences to the paying owners? Non-payment of the association’s fees leaves the paying owners “holding the bag.” Most associations plan their annual budgets as tightly as possible in order to keep the fees low. The board has a legal obligation to keep the complex in good condition to preserve everyone’s property values. They cannot let maintenance slide because someone doesn’t pay their fees, for whatever reason.

An association’s expenses are constant, so budgets are based on the community’s number of units. Other owners have to make up the shortfall because service providers are not going to feel sorry for the association and reduce their costs!

What can the condominium association do? There are some options. Depending on the severity of the problem and the bounds of state laws and regulations, a few of them are:  borrow money from a bank or from the association’s reserves; reduce contributions to reserves; cut back on amenities and services; delay property improvements; increase monthly fees and levy special assessments. Associations cannot abandon their obligations just because the funds aren’t adequate.

Even though we can all sympathize with those in financial hardship, community association living requires all owners to pay their percentage of ownership of each year’s budget.  The board of directors must be diligent about collection to protect all owners from the financial burden non-payment of fees causes.

Kay Senay is the author of CONDO BUYING & OWNERSHIP MADE SIMPLE: TIPS TO SAVE TIME & MONEY.  Visit her website at www.condo-condominium.com for a FREE TIP SHEET.  Send your questions and stories to Kay atcondotalk07@yahoo.com.

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