So here is what you need to know in a nutshell:
- Mortgage defaults are soaring. In fact, homeowners stopped paying mortgages in record numbers in April. It was the largest one month increase ever recorded.
- Under Florida law, that spells financial disaster for our condos and HOAs.
Keep this in mind as you read this. Florida law protects the banks. When a bank forecloses on a condo unit or a home, several things normally happen:
- The owner is also not paying the condo or HOA assessments;
- The bank foreclosure takes many months and even years;
- Even when the bank finally finishes their foreclosure and owns the home or unit, they owe the condo or HOA very little and the association just lost a lot of money.
So why does Florida law allow the condos and HOAs to get slaughtered? Under Florida law, if the bank winds up owning the home or unit — even if the association has not been paid in years – the bank only owes the association the lesser of one year of assessments or 1% of the mortgage debt. In sum, it is usually a fraction of what is owed to the association.
So why is the law written this way? Clearly to protect the banks. The theory is….. if we pass a law and make banks responsible for payment to the association for all of the unpaid dues of the owner they just foreclosed on, banks simply will not lend money to people who want to buy in a condo or HOA. Maybe that’s true.
If however such a law did exist, all it would mean that banks would have to protect themselves a little more. They already protect themselves when it comes to real estate taxes. You know how they make you escrow a year of real estate taxes in advance? That’s done because real estate taxes have a greater priority than mortgages do. If the taxes don’t get paid, the county can wipe out the mortgage and the bank would be owned nothing. So in response, the bank makes you pay the real estate taxes in advance so they’re covered.
