Bank foreclosures in Florida’s condo sector are being enforced by homeowner associations through a process called reverse foreclosure to force lenders to pay association dues and maintenance fees.
In Florida where condo foreclosures have soared along with single-family and townhouse foreclosures, 60 percent of HOA associations are struggling from unpaid association dues. These HOAs have reported recently that more than 50 percent of their unit owners have already missed paying two months or more of their association dues and maintenance fees.
A large number of these unpaid dues involve units foreclosed upon by the banks but were not yet repossessed completely by them. According to HOAs, banks were not completing the foreclosure procedure deliberately to avoid paying the maintenance costs and association fees.
After using other strategies to force banks to pay and failing, a rising number of HOAs are using reverse foreclosure to make lenders pay. Under reverse foreclosure, HOAs file a foreclosure action on the distressed unit to obtain the property title and collect the unpaid fees.
But they are not going to sell the property because they do not have the right to sell as the bank holds the major lien on the property. What they do is to renounce their claim on the condo unit in court and then ask the court to give the condo title back to the lender. The HOA then can begin collecting unpaid fees from the lender.
HOAs explained that they have resorted to the reverse foreclosure tactic because legislators have refused to force lenders to carry out their responsibilities for bank foreclosures.
According to Ben Solomon, a lawyer with Association Law Group who worked out the first reverse foreclosure in Florida for the Homestead master-planned community Keys Gate, HOAs have to find a legal way to survive.
Analysts said that unpaid HOA dues are among the reasons for further foreclosures as struggling condo unit owners who are assessed higher fees to cover for the fees of foreclosures units would likely walk away. Additionally, prospective buyers will likely cancel their plans of buying units in the complex if they come to know of HOA problems with association dues.
Nevertheless, even if lenders are forced to take title to distressed units through reverse foreclosure, they have the right to refuse to pay over 12 months of unpaid association dues. For bank foreclosures in condo buildings, they can only be compelled to pay up to six months of unpaid dues.
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