bridge1.png

Good foreclosure news for some owners is bad for others

by sfishome on February 13, 2009

4 banks announced new moratoriums on foreclosures, Wells Fargo, Bank of America Corp., Citigroup Inc. and J.P. Morgan Chase per this article.

This may be great news for Single Family homes, but could have horrendous unintended consequences for Condo buildings. As I wrote a few days ago, condo buildings that have more than a few foreclosures are at risk of spiralling out of control as unpaid HOA dues add up. Once all possible common area expenses are cut, and the building is short on cash flow, dues must be raised, or special assessments must be made to raise money from the “healthy” owners.

Unfortunately some of those owners will likely be at the financial edge of a cliff… with any extra expense could push them into foreclosure… and you can just picture the snowball effect and possible avalance of foreclosures.

The moratorium on foreclosures is only going to lengthen the time HOA’s will not get paid by defaulting owners, and that will force HOA’s to pursue foreclosures themselves to try shorten the time period that HOA dues go unpaid. Of course there are legal costs associated with pursuing foreclosures, and if the owner in question has no equity then none of that money will be recaptured. The additional downside is that foreclosed units usually sell for less than market value, thus creating a new and lower market value for all other units throughout the building. As owners watch values decline, even more may default and the beat goes on.

So good news for those in financial straights may only cause more to join them, especially in newer condo buildings where everyone is underwater already.

Leave a Comment

Previous post:

Next post: