Condos Forced Into Creative Action
CHICAGO - Condo associations, developers and lenders across the nation are trying innovative tactics to save themselves from financial disaster amid the foreclosure crisis.
The growing number of foreclosures deprive associations of the assessments they need to cover insurance, maintenance and other costs and can undermine property values.
The association at Shoreline Towers, a 378-unit Chicago condominium, plans to use reserve funds to buy foreclosed units, rent them, then resell them when the market improves.
The move prevents foreclosed units from being sold far below market value and allows the association to recoup some unpaid assessments, says Chris Sempler, vice president of Shoreline Towers' condo association board.
State law allows associations to be paid six months of past-due assessments when a foreclosed condo sells. Sempler says renting some foreclosed units - there are five to 10 at any given time - will allow the association to recover more money, and exercising its right of first refusal prevents condos from being sold far below market value.
"If we did not go this route . . . this could have gotten to a point where we would have needed a special assessment," Sempler says.
Last month, a judge in Seminole County, Fla., appointed a receiver to collect rents at the request of a condo association at a condo where more than half the owners were delinquent and unpaid fees topped $700,000.
The rental income will be used to pay the overdue assessments of condo owners who rented their units, then stopped paying.
"Extraordinary times call for extraordinary measures," Circuit Court Judge Alan Dickey wrote in his order.
Some Ohio condo associations that had banned the rental of units are enacting hardship rules to allow owners to rent to avoid foreclosures, says Jim Chew, owner of Condo Management of Columbus. Some developers are financing mortgages themselves, he says.
Banks and other lenders in Florida also are renting condos that are in foreclosure, but they aren't always prompt to pay assessments, says Pete Dunbar, a Tallahassee lawyer. Dunbar expects the Legislature to weigh requiring buyers to put several months' fees in escrow to ensure payment to associations.
Companies such as Accelerated Marketing Partners, based in Boston and Danville, Calif., are auctioning condos at bargain prices.
"The worst alternative," says co-founder Ken Stevens, "is for the bank to foreclose and take the property back and wipe everybody out."