Condo Fees & Foreclosure
Condominium buildings usually charge the residents in their apartments a regular maintenance fee to cover the common expenses of the entire complex. These expenses go toward building amenities, such as heat, hot water, sewer service, garbage pickup, building insurance and electricity. A foreclosure usually affects the payment of condo fees badly.
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Nonpayment
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Homeowners in foreclosure are usually facing financial difficulties and can't afford to pay various bills and debts. Before they even enter the foreclosure stage, they often miss their condo fee payments. During the foreclosure process, the mortgage lender that forecloses on the property also doesn't usually pay the condo fees. This leaves the condo management in a financial bind. Small condo associations with 15 or fewer units face a higher risk of facing financial distress. When a few homeowners stop paying condo fees, only a small number of homeowners can help make up for the lack of payment.
Effect on Other Homeowners
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When homeowners don't pay condo fees, the building may not have enough funds to carry out its maintenance activities. The other homeowners often have to pay higher condo fees to cover the building's expenses. If the condo association can't get enough funds, the whole complex could deteriorate, resulting in lower property values. Vandalism and criminal activities may also occur more often as homes enter foreclosure and become abandoned. This may lead to higher insurance rates that drive up the condo association's expenses.
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Foreclosure by the Condo
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Depending on the state laws, the condo association may have the power to foreclose on units that don't pay their condo fees. However, condo associations have liens that are subordinate to the mortgage lien. With a mortgage foreclosure in process, no buyer would buy a foreclosure by the condo association. Also, the condo association can only get a maximum of $2,500 compensation for a foreclosure.
Reverse Foreclosure
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A mortgage lender often takes a long time to finish a foreclosure process to delay having to record the loss in its financial statements. With a reverse mortgage, the condo association files its own foreclosure notice and takes title. Although the condo association can't sell the property, it can go to court and request that the judge give the title to the lender. After a reverse foreclosure, the bank officially owns the property and has to pay the condo fees.
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References
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