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IS
FORECLOSURE FOR UNPAID DUES THE PANACEA FOR ASSOCIATIONS?
By
Jan Bergemann
Published
October 18, 2013
I
have to answer this question with a resounding “NO!”
Many
association board members who listened to the advice of their
association attorneys and community association managers
realized really fast that pushing foreclosure for unpaid dues
can be a losing proposition. I have seen annual financials where
the association spent $80,000 in fees attempting to collect
and/or foreclosure, only to get only $30,000 in return for their
efforts. That's another $50,000 deficit in addition to the
unpiad dues that were never collected.
Let’s
make sure everybody understands that there is no “one
solution fits all” when it comes to the attempt to
collect unpaid dues.
There
are many community associations with a high percentage of owners
in arrears of dues and assessments, causing budgets to fall
short and neighbors having to pay much higher dues in order to
make up for the neighbors who have stopped paying their dues.
Emotions
run high – neighbors are mad at neighbors – in my opinion
rightfully so. Why should an owner pay for the TV-cable and
water bill for the neighbor who lives in his home for “free?”
We
have seen over the years many disingenuous
attempts to force neighbors to pay past assessments. Many of
these attempts ended in a financial catastrophe for the
associations/still paying owners.
We
heard lobbying groups, claiming to lobby FOR
associations, claiming they pushed for legislative changes that
will be the panacea for associations that are being hit by a
multitude of owners in arrears.
I
can still remember Donna Berger making a fool out of herself
when she praised the efforts of CAN
(the lobbying group of the law firm of Katzman Garfinkel Berger
[KGB]) to make changes to FS
718.116(1)(b)a. + b., the so-called Safe Harbor
provisions, requiring mortgage holders to pay now 12 months (instead
of 6 months prior to this change in the statutes in 2010 [S1196].
On first view the change from 6 months to 12 months looks good
– if there wouldn’t be paragraph b. that says:
"One percent of
the original mortgage debt."
Make
no mistake: This “highly praised” change didn’t put – in
most cases – not a single dime more into the association’s
coffers.
The
next great publicity stunt of certain law firms: Foreclose on
the deadbeats, acquire the title to the property at the auction
and rent out this unit/home – until the bank forecloses on
this unit/home.
Some
associations did well with this advice, others lost their shirts
over it. Not every unit/home you acquire at auction is equal –
and boards should be very careful before trying to get the deed
at auction. Many foreclosed upon units/homes are in serious
needs of repair and would cost thousands and thousands of
dollars before they would be “rentable.” With other words:
Associations in reality spend money on a home/unit that will in
the end belong to a bank/mortgage company that will finally get
the deed to the property – only paying the amount of unpaid
dues as described in the Safe Harbor provisions of the statutes
to the association.
Boards
willing to go this way are playing lottery with the
association’s finances – hoping that it will take a while
for the bank to foreclose.
Here
is my advice: If you want to gamble, go to the casino – but
don’t use your neighbor’s money to place the bet!
What
say you? Is foreclosure for unpaid dues a panacea for unpaid
dues – or should the board decide from case to case what’s
best for the other association members?
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