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I read in a financial blog that investing in condo has a risk that if economy collapses some of the owners might stop paying their HOA fees and the condo has to either hike the fees for the rest who are paying or cut services or get into a debt. I don't remember all the details but if I am not mistaken such situation would cause other apartments to lose value.
Can this really happen? What would happen if an owner of a condo in an apartment building stops paying the fees? Can the management sue him and force him to sell the condo to pay what he owes?
There are generally several option available, to include placing a lien on a condo (which means that the condo owner can't sell, refinance, etc., without satisfying the lien), wage garnishment (but not helpful if the owner isn't paying due to being unable to pay), or foreclosure. Different states have different rules, though, but I think almost all have some combination of the above to varying degrees.
In short, there are plenty of ways for an association to get the back dues.
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A member not paying their dues can lose access to community amenities, such as access to pool, workout room, and others. In many states, the condo can be forced into foreclosure. If there are insufficient funds for maintenance of common property or due to special assessments, the other owners could potentially have to make up any shortcomings.
You didn't disclose what state this is in. I can't guess and it is not the same process in all states.
I read in a financial blog that investing in condo has a risk that if economy collapses some of the owners might stop paying their HOA fees and the condo has to either hike the fees for the rest who are paying or cut services or get into a debt. I don't remember all the details but if I am not mistaken such situation would cause other apartments to lose value.
Can this really happen? What would happen if an owner of a condo in an apartment building stops paying the fees? Can the management sue him and force him to sell the condo to pay what he owes?
The HOA will lien sale the property to get the money owed for past due fees.
The HOA will lien sale the property to get the money owed for past due fees.
I'm on the board of my townhouse condo complex, and it's actually very difficult to collect the money from those few who refuse to pay. It can be done, but there is a lengthy legal process, and often there are other creditors in line ahead. A lot of times they don't pay their mortgage, either, and the bank gets there first. Or they declare bankruptcy.
We had one woman that we finally got out after YEARS. She had the nerve to write an online book about how to get over, not just on the condo fees but on paying for just about anything. People KNEW she had a job in a local supermarket, but because she was working under either a fake Social Security number or someone else's number and not the one we had, the lawyer couldn't get a garnishment on her paycheck. Eventually her home was foreclosed by the bank, and she is gone.
Some of them know how to declare bankruptcy so that they can stay in their home but the accumulated fees go away. One family we had owed over $30K in fees but declared bankruptcy three times. They finally must have pushed themselves to the edge because the bank foreclosed on their unit and they are gone.
We had another who owed more than $10K, and we had the lien, and she won some kind of lawsuit and we collected the money. That was great, but it was a year ago, and she hasn't paid since.
The majority of the residents pay, and if they have a bad time due to job loss or something, the property manager will work out a payment plan. Most of them catch up.
We've got another one now who hasn't paid in years, and we have the lien and it's to the point where soon the HOA will own her unit. We know the woman is a hoarder and has gone to live with her daughter. If we do end up owning her townhouse, it will cost a lot of money to clean it out and get it in shape to sell.
Some people just suck, and unfortunately, some of them live in condo complexes. But yes, if you look at your annual condo budget, there's a likely a line item for the losses due to these types.
I'm on the board of my townhouse condo complex, and it's actually very difficult to collect the money from those few who refuse to pay. It can be done, but there is a lengthy legal process, and often there are other creditors in line ahead. A lot of times they don't pay their mortgage, either, and the bank gets there first. Or they declare bankruptcy.
.
But if the bank repossesses the condo, shouldn't it be responsible for paying down the debt the condo accumulated?
I am more interested in FL laws.
So is it possible to declare a bankruptcy and keep the condo that might be worth millions? Doesn't make sense.
Is it possible to know how many apartments in the building are not paying?
Yes, being in a condo comes with more risk like this (speaking about a building), more so than a SFH or townhome association.
Reason is a building has to have maintenance, HVAC, elevators, etc. I had a condo in a building with a high default rate, association could not pay for anything, elevators constantly breaking, HVAC system sucking in the summer, gate kept breaking, cycling of attendants because they were not getting tips like they do working in other buildings, a complete mess it was, this was right after the 2008 mess.
It sucked because you need attendants, you need the elevator, you need the gate to work, you need the HVAC, and you have zero control over these matters. In a SFH, association has issues? Well, you still have control getting to your home, still on control over your HVAC, etc, not dependent on anyone else for these things.
But if the bank repossesses the condo, shouldn't it be responsible for paying down the debt the condo accumulated?
I am more interested in FL laws.
So is it possible to declare a bankruptcy and keep the condo that might be worth millions? Doesn't make sense.
Is it possible to know how many apartments in the building are not paying?
The issue is, is there enough equity in the unit (when sold) to pay all the debtors off? Typically any mortgage debt(s) come first. Often called Super Liens with the association being down the list and rarely paid.
I have seen figures that say about 7% of all owners are behind on their dues/Regime Fees so a financially well managed association will build this delinquency rate in its budget. My figures are per-Covid.
Association financial reports will show how much is delinquent but typically do not mention the owner nor even the unit number. Doing so is illegal in some states plus it opens the association to a legal suit if they make a mistake calling someone out.
FL has some rules/laws about being able to keep one's residence even in a bankruptcy.
FL has two sets of rules/laws for associations based on their type. I think they also have a 3rd set for mobile home parks.
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Quote:
Originally Posted by johngolf
FL has two sets of rules/laws for associations based on their type. I think they also have a 3rd set for mobile home parks.
In Florida, there are 4 recognized types of communities that each have their own statutes (718-condominiums, 719 - Co-ops, 720 - Homeowners associations, 723 - mobile homes). While the majority of these statutes are worded similar, each has some specific differences. Just in case anybody wants to read more.
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Quote:
Originally Posted by Banbuk77
But if the bank repossesses the condo, shouldn't it be responsible for paying down the debt the condo accumulated?
I am more interested in FL laws.
In Florida, as written in the statutes, if a bank repossesses a condo then the condo association or the HOA can only collect up to 12 months of unpaid dues. Anything additional would have to litigated in court against the former owner, is very costly and not likely to be found in their favor.
My HOA dealt with a situation where a townhome was repossessed by the bank about 2 years ago. It sucked that we could only collect 12 months of unpaid dues in the resale of the home but still better than nothing.
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