Condo Dues Defaults Will Punish Unfairly and Scar the Innocents
Financially sound condominium owners will be among the next groups victimized by the credit crisis. While shaky owners default and buildings’ fees rise, that financial burden will fall squarely on the shoulders of better-positioned owners. The problems that led to this situation are sending disastrous ripples to areas that few had predicted. Laws that protect Co-op owners require any repossessing bank to pay maintenance. In a co-op, equity reverts to the building. A condo lacks this protection. With a condominium, the bank has or –in these times- lacks the equity.
Liens, Times and Years. Oh My!
A building can place liens, or threaten to, before the customary three months. Processing a lien can take many years. We got into this financial mess by assuming that existing circumstances will be similar to historical trends. It’s wake up time for the people with the ability to act.
Proactive measures for Condo boards. How early is too early?
Property managers can look for early signs of delinquency. Impose STIFF, eye-popping fines on late dues payers. The owners willing to accept eye-popping penalties are the ones with no choice. This serves as an early warning sign. Proactively filing liens on these condominium owners may get them to repay quickly. It could also be the call to face the music and downsize or seek financial help.
Another less discussed and highly likely scenario is that the courts will become backed up with foreclosure actions. The proactive boards that act swiftly in 2009 are the ones more likely to benefit.
Likely suspects
Owners who financed with no money down and or those who used the 421 tax abatement will face huge increased charges. If 40% of your building’s units have changed ownership in the past 3 years, your neighbors may have taken advantage of easy money and over leveraged themselves.
Blame the Victim?
Looking to victims for help will not provide the best solutions. Although rising delinquencies can lead to finger pointing in the micro-culture of a building (making for tense elevator rides, long board meetings and possibly officer turnover), the people most likely to solve the problem are not the ones who caused it. That unfortunate financial burden will rest with the remaining owners. The time for buildings to offer less and charge more is rapidly approaching.
A difficult pill to swallow
To help, buildings can repurpose assets for income generation – storage areas for commercial or medical rentals, rooftops for solar panels or cell towers. Lighting can be switched to high efficiency fluorescent, saving thousands of dollars per year. All systems- ex. furnace gas or oil- can be evaluated for efficiency. These are potential band-aids. In the meantime, many will be injured.
Boards can implement or increase flip charges (transfer fees), and sublet charges and while decreasing required sublet lengths of stay. They can actually welcome sublets in order to increase revenue and to help the struggling owner. Health club hours can be shortened, and other amenities trimmed. These measures have traditionally been associated with Co-ops. We expect to see more condo boards instituting co-ops style policies where possible.
There is no easy fix and the problem will get worse before it gets better. The best way out of this problem is to adopt proactive measures and remain ahead of the curve.
The board of managers…shall have a lien on each unit for the unpaid common charges thereof, with interest thereon, prior to all other liens except only
(i) liens for taxes on the unit in favor of any assessing unit, school district, special district, county or other taxing unit,
(ii) all sums unpaid on a first mortgage of record,