Boy what a difference a few years makes. Remember the days where foreclosures were the talk of the town? Remember when a large percentage of the units or homes in your community were not paying their assessments and the association was struggling to pay its bills? Remember when banks began owning units in your community and even the banks were refusing to pay their monthly assessments? Well, to a large degree, that problem is gone. The question is, can those days return and what have we learned from what was a very scary situation?
One thing we learned is that The Florida Legislature will do nothing to help the situation. As all of you know by now, and as many of you learned the hard way, that when a bank forecloses on a home or unit, they don’t need to pay all of the unpaid assessments on the unit. The law protects the banks and they only have to pay the lesser of one year of assessments or 1% of the mortgage. Associations across our state lost millions of dollars and continue to lose as a result of our legislature protecting the banks.
We learned that the laws created by The Florida Legislature to help the associations with these problems were for the most part a waste of time. Delinquent owners didn’t suddenly start paying their assessments because they were prohibited from voting or running for the board or using the gym.
We also learned that associations who saved money before the crisis hit, did better than associations who didn’t. Associations who went into the foreclosure crisis with huge reserves were able to borrow (with approval from the owners) from these funds in order to meet monthly bills.
Some associations who thought it was a good idea to prohibit owners from renting their unit for the first year or two of ownership found out that these owners were unable to pay their assessments without collecting rent from a tenant, thus compounding the problem. Many associations had to forego funding reserve accounts because with so many people not paying their assessments, any funds collected from the owners that were paying needed to be used to pay regular bills, never mind about putting away money for reserves.
For the most part delinquencies have resumed to normal levels in most Florida communities. I would say that in most associations only about 5% of the owners are actually delinquent. In some buildings we represented during the foreclosure crisis containing hundreds of units, delinquencies exceeded fifty percent. The numbers were staggering.
So can the foreclosure crisis happen again? I think it can. There is another condo boom happening right now. It seems the cranes are everywhere again. Most of the new construction is certainly not considered affordable housing to the average family. Money is cheap to borrow and investors are borrowing money to buy these units. Instead of people buying these units in order to live in these units, we see desperate attempts to rent out these units by the day or week on various internet sites. Associations are fighting back against these daily rentals. But if the associations succeed, maybe these owners won’t be able to pay their assessments any longer. And if interest rates eventually go north, and they will, maybe more owners won’t be able to afford their condo assessments any longer because their adjustable rate mortgage has just gone up. Sound familiar?
I’m not pretending to be a crystal ball, the bearer of bad news or a fortune teller. All I’m saying is that history often repeats itself and that associations are wise to learn from the past and whenever possible, save some money for that rainy day, because in Florida it certainly may rain again.