When Homeowners have financial troubles, the last thing they fall behind on is the mortgage, but the first thing they stop paying is Association dues. Because of this, many Condo & Homeowner Associations in Florida are squeezed for funds and have become aggressive in pursuing every penny. They now have legal representation, have been successful in litigating similar cases, and are not as likely to back off.

What bank negotiators don’t realize is that if the property goes into foreclosure, it could end up costing radically more than just the delinquent Condo fees.

1. Special Assessments:

Unlike delinquent maintenance fees, Special Assessments are not extinguished in a foreclosure because they are part of the property’s cost basis. In other words, the assessed amount becomes real estate -- part of the property. Example: Structural improvements or repairs not covered by association reserves. Delinquent maintenance fees are part of an Association’s receivables, but assessments are part of the real estate itself. As this assessment directly affects the tax valuation of the property, it cannot be separated from it. Which means when a bank forecloses and the property becomes an REO, the entire assessment must be paid, plus the back due monthly fees and the Association’s legal fees, penalties, and the bank’s legal fees.

2. HOA or COA:

One wrinkle to check for is whether the property is governed by a Homeowner’s Association or a Condo Association. Currently, in a Florida foreclosure, the bank would only have to pay 12 months* of Condo Association dues (or 1% of the original loan amount, whichever is lower) in order to deliver clear title to the next owner. However, litigation in Florida is less certain regarding unpaid back dues owed to HOAs after a lender forecloses.

3. Attorney Fees:

Another thing the bank negotiator may not be thinking of is that, even if they only have to pay 12 months of past due monthly Condo fees after a foreclosure…what about the legal fees owed to the Condo Association’s attorney? Judges are lawyers. You think lawyers look out for other lawyers?

The bottom line is that foreclosure will cost a bank more than just a few months of fees and it is in the lender’s best interest to negotiate these costs as part of a short sale, rather than dragging its feet until foreclosure.

*only 6 months prior to new legislation in 2010

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Comment by Jennie Blackburn on October 14, 2010 at 9:00am
Excellent comment, Juan, thank you. The lender doesn't pay the special assessment OR 6-12 months of dues at the time of foreclosure. That doesn't happen until the lender tries to sell the property as an REO. Don't most associations have to approve a new buyer? And if there's no approval, there can be no sale? No transaction? If there was an unpaid special assessment on that unit, couldn't the association deny approval until it's paid in full? At that point, the association is in a superior negotiating position. No tickee, no washee. So to speak.

So the lender is better off negotiating the Special Assessment with the association as part of a short sale NOW instead of waiting until they want to sell it, when the full amount plus attorney fees, late fees, etc. have to be paid. The time cost of money. Better to pay a little bit now rather than a whole lot later on.
Comment by Juan-Manuel Valera Jr on October 14, 2010 at 12:32am
I have yet to see any payment by a lender on any of the special assessments that we have submitted in our estoppel letters. I have asked about this and I have been informed over and over again that they are only going to pay 6 or 12 months of dues depending when it was foreclosed or 1% of the original loan (the lesser of the two evils as I call it). Is this black and white that a lender MUST pay for special assessments when they foreclose? If so, I would like to see where it states this so I can pursue this! Can you direct me in the right direction then?


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