Surviving a Troubled Foreclosure Market, a Guide for Florida’s Community Associations

Talk about bad timing. A poor economy, upcoming elections and a new problem with the foreclosure market is front-page news.  Bank employees “robo signing” affidavits without properly reviewing the information they were attesting to has become a hot campaign issue. Regardless of whether a bank self imposes a foreclosure moratorium or new legislation imposes one, Florida’s community associations will suffer, unless they plan ahead and act quickly.

Florida’s laws limiting the amount of past due assessments owed to a community association by a bank foreclosing on a home incentivize banks to drag, delay and stall foreclosures.  Additionally, banks are not required to “write down” the value of bad home loans until a home is foreclosed upon and title to the property is transferred (back to either the bank or a new owner from the foreclosure sale). A moratorium on foreclosures, even a half hearted delay to review pending foreclosures (already occurring), allows vacant homes and units in community associations to remain vacant, become moldy and drag down neighboring property values.If a community association is not careful, further delays in banks completing their foreclosure(s) can cause the community association to be mired in a precarious financial cycle:

Banks foreclose on homes people can no longer afford.
Assessments raised to cover shortfalls from foreclosures.
More owners walk away or cannot pay the higher assessments.
Repeat, Repeat . . .

Avoiding being stuck in such a cycle requires a community association to, in the very least, implement the following measures:

1.    Ensure your association is acting timely on all delinquencies.  When faced with limited cash flow and many bills, people pay the creditors “that make the most noise”. Allowing delinquencies to languish for no reason (i.e. owner has made no attempt to pay or communicate). To do so is foolish, a dereliction of duty by the Board members and costly to the other members of the community association.  Keep in mind, “people talk” and the results are contagious. When a delinquent owner tells his/her neighbor the association’s collection efforts are slow, erratic and/or nonexistent the neighbor is more likely to forego paying the association when times become tough.  Faced with money problems the neighbor knows there are little or no consequences to not paying his/her community association.

2.    Continually inform owners of deadlines and due dates. Communicate often with members through newsletters and captive television channels informing them of upcoming due dates and other collection related information.

3.    Make paying and payment plans easy for delinquent owners.  Offer payment plans and easy ways to pay.  Never publish delinquency notices, embarrass or talk down to a delinquent owner.  Continue your collection efforts until the owner’s payment plan is agreed to in writing.

4.    Stick to your deadlines and move on.  Now is not the time to wait an extra week or month for late assessments to arrive, because they will not. After the collection deadlines in your Declaration expire, transfer the file to your attorney to begin collection proceedings.

5.    Budget for collection expenses, now. Most community association attorneys charge delinquent owners the attorneys’ fees incurred in their initial collection efforts.  Foreclosure lawsuits typically involve the community association paying its lawyer a flat fee for his/her attorneys’ fees as well as costs. A budget item for these anticipated collection costs ensures there will be no delay in having your attorney move forward with collection efforts.

6.    Foreclose on homes and if they do not sell at auction, try to rent them out. Boost your community association’s cash flow while the bank delays, drags and stalls its own foreclosure by renting out the unit. Florida law now allows community associations to rent out units and homes they retained after a foreclosure sale.

7.    Do not let mold, vermin and insects spread while the toilets and sinks leak in a vacant condominium unit.  Moldy or insect and vermin infested , vacant  condominium units can expose a condominium association to a large amount of liability if these problems spread to adjoining units or common areas.  Additionally, an unattended leak from a vacant unit can be disastrous. Often times the leak is goes unnoticed until it has already spread throughout and below. Condominium associations are in charge of maintaining and protecting common areas. When a unit becomes vacant utilize the association’s statutory power to enter the unit for the health, safety and welfare of others.  If a unit is becoming moldy, consider having the electricity to the unit turned on and billed to the association. The minimal cost for having an air conditioner on and set at a mold inhibiting level far outweighs the potential liability to the community association.

Collecting money from neighbors and friends living in your community association is never a pleasant task. Unfortunately, the alternative of having other neighbors and friends pay more to account for shortfalls is as equally uncomfortable.  By consulting with your attorney regarding the ideas presented in this report,  you can rest assured everyone obtains the same fair treatment, including the owners that are not delinquent.