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.
Condo and
HOA assessments can be treated the same way by the banks if it
were necessary but, as you can see, the politicians make sure
they the money owed to the county is given SUPER PRIORITY over
all other obligations on the property. Taxes are first in line.
Their money is guaranteed. To the contrary, they don’t care
about the money owed to the associations. I the law were
changed, the bank can easily make a borrower escrow a year of
assessments if they want to buy that condo or home so just in
case all goes bad, the association is covered. Maybe they can
charge an extra quarter of a point in interest as well. At
least people on fixed incomes won’t have to cover the
delinquencies of their neighbors.
So now
you know why you get the short end of the stick when
foreclosures increase and the economy tanks. Next week we will
tell you what to do about it.
Suffice
to say……..there may be a rough road ahead.
