HOA Hires Taser Wielding Guards for 3AM Eviction

HOAs and Condominium corporations when dealing with delinquent fees, and after following the correct steps, can foreclose on the property to recoup outstanding amounts. In foreclosing, sometimes you need to evict the owners or tenants.

Apparently, for the Jasime  Homeowners Association, California, simply knocking on the front door during daylight hours, and communicating the need for eviction isn’t their chosen approach. Instead they hired a security company to perform a 3am raid on the tenants.

After the guards entered the premises, awoke everyone, forced them into the street in underwear and then ransacked their stuff, the tenants had an opportunity to show lease and utility payments. This proved that the tenants were actually renters (with rights) vs. what the HOA claimed – squatters. With the new information, the guards allowed the tenants back into their homes.

The tenants are suing the HOA (and it seems rightly from the report) for a variety of charges. I would have to say that all this could have been avoided if the HOA had made sure that clear, and proper, notification of eviction had been given. Say, during daylight hours.

The best part, one of the security guards hired is quoted as saying:

between you, me and the lamppost, the homeowners’ association is over-zealous.

Really? Over-Zealous. Say it isn’t so!

When Hoarders Abandon

Sometimes foreclosures come with bonus super surprise gifts – like years of accumulated trash. When hoarders abandon a unit (hey, they suffer financial hardship as well) to a foreclosure, by the condominium corporation or the bank, the nearby residents often get the bonus of smell and vermin as parting last words.

At some point the condominium will use by-laws (almost every condominium has these) regarding smells, health, and safety to enter the unit and have all the trash removed. If the property has a mortgage, or the bank has possession, in most cases the costs of cleanup will be paid by the bank. Because outstanding fees imposed by the condominium on the unit need to be paid before sale, there is a pocket to pull the cash from.

In the case of a foreclosure by the condominium on a mortgage less unit, the banks will usually award costs and allow the condominium to collect out of the proceeds of sale.

Condo to Apartment Conversion Forces Owners to Sell

All condominium legislation, anywhere, includes a clause on dissolution of the condominium and doing something else with it. The primary use of this legislation is proper and quick handling of condominium that has suffered catastrophic failure (fire, storm, structural failure). If the building is unsafe to live in the owners can choose to sell the property instead of rebuild.

The clause can also be used when the majority of units (often 90%+) chose to disband for other reasons. In Orlando, state legislation in the last four years has made condominium dissolution easier, and some failed condominium developers have bulk sold their units to investors that are dissolving the condominium and turning them into rentals.

For the Element at MetroWest, Orlando, this is exactly the case. An investment group now owns about 70%+ of the 328 units and have moved to turn the building private.

For owners that still remain, they have little choice. The investors can give them part ownership in the new endeavour and boot them, or give them fair market value and boot them. The only problem is units have devaluated by 71% – but the mortgages remain the same.

Owners won’t have much recourse. While some will fight it, it is likely they will only be fighting for a slightly better market valuation or extra payment to move.

I have to agree – based on the immense amount of stories that feature massively empty complexes, or non-paying owners – a conversion to apartments may keep the building, neighbourhood and tax rolls maintained.

I have always encouraged condominiums to foreclose on delinquent owners of condominium fees – because the building must be maintained and the other, responsible, owners protected from another’s negligence. In this case, we have owners – responsible and fee paying owners – that none the less are being gravely injured now by terrible developers who were unable to sell the product they created. And those few responsible owners that bought are now being harmed anyways.

Condominium Corporation Forecloses on $4.70 Outstanding (Plus $3000 Lawyer Bill)

In 2009, Geeta Ramcharitar of the Venetian Village condominium, in Melbourne Florida, had a $4.70 outstanding sum owed to the corporation. It’s not clear why the sum was outstanding, or why the board simply didn’t write off less than a fiver in debt, but the debt existed.

Instead of resolving the issue – the corporation requested their law firm to start a collection process. By the middle of 2010 the law firm had billed about $3000 to collect this fiver. The corporation was then able to retain a court hearing to foreclose on the unit to collect outstanding amount, interest, fines and lawyer fees. The good news is the judge threw out the foreclosure and the amount owning.

The board of the condominium should literally be slapped. Multiple times. In order to collect on $4.70 they wasted a huge amount of people’s time – including mediation and court time – and a lot of people’s money. In essence, the board made a very very stupid decision (they are there to make decisions in the best interest of the condominium) – and should have written off the amount a long time ago. For good measure the lawyer should be slapped too – for padding her income on such a frivolous request.

Mortgages Are Not a Right

There’s a growing trend to complain at the stricter requirements financial institutions are requiring for new mortgages. USA Today has a whole article filled with people who feel that getting a mortgage is too hard, too long, and too difficult. Everybody claims their mortgage risk would be non-existent.

It seems so long ago, but even qualified loans (those to individuals that should be completely safe) had delinquency rates (at the extreme) of 40% in 2007 for people who put down 5% on the mortgage. The delinquency rates for people who put down 30% or more was still a staggering 2.4% that year.

Just to clarify, even qualified loans where the new owners were putting down a third of the mortgage themselves resulted in 1 in 42 loans being delinquent. That’s huge. For those putting down 10% that number jumps to one in 4.2 being delinquent loans.

Because of failed loans, banks are still looking to repossess 800,000 homes in 2011.

No mortgage is without risk to the lender, and they have all the right they need to run you through a grinder of forms and checks to ensure you’re a good risk. As it is possible to get loans in the US with as little as 3.5% down, it might be time for that minimum to be raised. All numbers show that the less a purchaser puts down, the higher the rate of delinquency. Hence, if you’re putting very little down, the tougher the fiscal review.

If you are really wanting to finance a home, it is substantially easier to get a mortgage the more you put down on the property. Saving more before purchase, or buying a cheaper residence, will both go a long way in securing a loan with less hassle.

Case Study On Condominium Price: Cloud 9 Sky Flats

Some people look at the price of housing much like stocks – if they go down enough, then at some point they have to be a great value to buy. Today we are looking at The Cloud 9 Sky Flats at 5601 Smetana Drive, Lake Minnetonka Communities, 55343.

The Cloud 9 a 165 unit conversion from an office building into a condominium that was turned over from the developer in 2005. Conversion from an office building is a little uncommon in itself (though not unheard of) and brings with it some baggage – including in this case windows that don’t open, a lack of balconies, floor plans not originally designed for residence, and large lot based parking among other factors.

Zillow shows four units currently for sale in the complex. Most attractive to purchasers are the unit prices which average at $152/sqf. This is around 50% of the cost of the units from only a few years ago (2006 peak). Half off a condominium seems like a good price on its own, but the condominium has several other issues that may mean the price is appropriate, and not at a discount.

First off, multiple individuals have been charged with mortgage fraud cash back scheme on over 40 of the units sold in The Cloud 9 during 2006 through 2008. These fraudulent sales both artificially inflated the price of the units, and then assisted in the price collapse as more than 80% of those sales went into foreclosure.

Second, the condominium appears to have a maximum rental limit of 20% of the total units – of which that number has been met. Current owners will have difficulty renting until other units stop, and investors are blocked from buying because they are unable to rent the unit.

Third, three of the four units are priced above the Zillow Zestimate on average by 7%, indicating that compared to the surrounding area, the units may still be overpriced. The fourth is 15% above the Zestimate, but has been on the market for 304 days, and may have been set when prices could have been higher.

Fourth, Re/Max Results show 43 active listings in the building (remember, in a condominium of 165 units) – or more than 1/4 of the units are available for purchase. If you buy into The Cloud 9, there will still be one quarter of your neighbours trying to sell, and as such actively pushing the value of you condominium down.

I always indicate that when buying housing, you should always buy what you think best suits your life, in a price that you can afford – with some financial room in case of unexpected costs or job loss. Outside of that, little matters if you are buying a home, including the current price unless you hope to flip or sell in only a few years.

If the question is if The Cloud 9 represents a good deal – it might be, but not if you base that decision compared to its price 5 years ago. There are enough issues to show that the price was artificially inflated, that the excitement over an office conversion (with all the related baggage) has worn off, there are current bylaws which encourage downward pressure on the price of units, and more than 1/4 of the owners want to abandon and sell out from the building (raising the question of why).

Importantly, for a building with so many foreclosures – at least 1/3 historically – and so many currently on the market, you should look at the financial statements of the corporation closely. Check to see if the foreclosures or current sellers have led to the condominium carrying a deficit because of a lack of paid condominium fees. If there is a deficit, new owners will at some time have to pay for that deficit, so make sure the price of the condominium reflects a discount for any deficit carried by the condominium, and you have enough cash if the condominium issues a special assessment or raises monthly contributions.

When Investors Abandon Units Owners Suffer Greatly

Ten weeks ago, Bank of Canada Governor Pat Carney warned that housing prices are now 4.5 times average household disposable income, or 30% higher than the 3.5 average of the last quarter century (In Vancouver they are 9.6). Further, he indicated that this is being driven by greed among speculators and investors. In Toronto, 60% of construction sales are by investors.

If the market value of condominiums comes down and as such triggers lower rental rates, investors will abandon under-water mortgages and incomes that don’t meet their bills. It’s hard to see this in the active market we have now, but all overly inflated values must mute, or drop, in value at some time.

Legislation in many regions of North America fail to do a very good job protecting owners in multi-residential dwellings when other owners stop paying their condominium fees, triggering a foreclosure on the deliquent units in order to recover the owed money to the corporation. For palces with poor legislation, when a unit is foreclosed on, the proceeds of the sale first go to the mortgagee, and not the condominium. The causes a chain of events that only further depress the value of the units, and jeopardize a large number of other owner’s homes.

For West Meade Condominium complex in West Nashville Tennessee, the chain of events has happened – 57 investor owned units in a 112 unit complex stopped paying their contributions, leaving the condominium $355,000 short on budget and repairs. Because there isn’t the money for maintenance, the building (and the value of all the units) is suffering. Because of decreased property value, the 57 units which have been court ordered to sell will likely garner less than the mortgage values. This leaves 55 upstanding owners in the hole for that sum on top of their own commitments to the corporation.

West Meade Condominium, without the owed amount, will be unable to meet ongoing insurance and utility bills, forcing the condominium into bankruptcy. Imagine as an upstanding owner having to move out of your home because of another owner’s fiscal imprudence.

In better jurisdictions, the condominium has first standing to collect fees owned. That means before the banks, and even before back taxes, the condominium gets paid out of the proceeds first. This is a fantastic situation. By giving the corporation first standing in a foreclosure (and also creating generous legislation allowing condominiums to bring their units to foreclosure on non-payment of contributions), the government protects the other owners from fiscal ruin, from non-maintained buildings, and from spiraling downward housing prices.

Good legislation for condominiums is important – especially given the fact that some owners can cause unchecked misfortune to others due to the nature of shared housing. With housing being a primary equity and destination of most people’s productive lives, housing requires more thorough consumer protections.

Banks are a form of commercialized savings. Housing is a form of self-directed savings which has significantly more public equity than all the banks combined. We’re willing to create massive legislation to protect bank based savings, we need the same friendly legislation for the most common and accessible public form of savings as well – people’s houses.

Special Assessments Do Not Need to be 10s of Thousands to be Unaffordable

As we hear of 87 to 187k special assessments that are being levied to some condo owners in Calgary, I read another story that reminds me that smaller assessments may be completely unaffordable.

96 year of Sarah Eisenber has lived in her Fort Lauderdale condo for 12 years, and the building (legally, there’s nothing nefarious here) is assessing a $6500 special assessment for storm window work (there’s big storms a coming!).

For many people, even young and first time purchasers, $6500 could be financed or borrowed against. But for a person who gets $1500/month in Social Security at the age or 96 – there is absolutely no recourse, no expected revenue to borrow against, and no savings.

For her, she had been budgeting on a predictable condominium contribution that she had been paying regularly – and never in default with. But a special assessment, even a smaller one will force her out of her home as the condominium legally forecloses the unit for the monies.

I guess there are two things to walk away from this story with.

One that the cost of livening in a condominium will always be monthly contribution and additional costs as determined. That’s the way it works. To budget without the special assessment possibility will put you behind on payments. That is simply the nature of condominium, and Sarah was in essence living in a house that was too expensive.

Two, that a well-run corporation should be able to predict and forecast this need (especially something like window/storm protection) – building a reserve over several years and having minimum impact on residents with a compromised ability to meet special assessments. As a board member, there is a responsibility to realize that not everyone had fiscal flexibility, and a good board tries to protect against additional unscheduled cash calls.

At 96, this is a tragic situation for Sarah. No ifs ands or butts. But it is a story that needs to be communicated to owners so they realize that the contribution alone may never be sufficient in meeting their fiscal responsibility to the condominium.