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Some Condo buildings may suffer more than others

by sfishome on February 9, 2009

The below post was primarily about Condo foreclosures in San Francisco in which I described a couple of buildings that could suffer more than others due to a snow ball effect of increasing foreclosures and declining prices. What I hadn’t even taken into consideration are the effects of defaulting homeowners not paying their HOA dues. This New York Times article speaks to some unique aspects of New York City real estate, but the general issue is the same here in San Francisco.

Banks get the first crack at equity when a homeowner goes through a foreclosure or Short Sale, and in the buildings where owners have no equity, the HOA gets nothing back. As foreclosures mount, the HOA begins to get in trouble, and in many condo buildings that spend most of what comes in, it doesn’t take long for the building to get in trouble. To save, repairs, cleaning, amenities, and anything else that can be cut gets cut, thus causing the building to deteriorate in other ways.

Worse, the HOA may have to raise a special assessment on remaining owners in order to make up any budget short falls, and that is unwelcome pressure on any owner who is barely squeaking by and could cause further foreclosures.

Older buildings tend to have many more owners with equity, so even if they were to get foreclosed upon, the HOA will collect delinquent dues with left over equity. So this really is a new building issue. In many newer buildings every foreclosure can have a major impact since no owner who gets foreclosed upon is likely to have any equity.

Once again I point you to the two buildings I mention in the below post… they have already been hit by foreclosures, so their HOA’s may already be under pressure. And if they have resetting loans, or owners suffer job losses, or just need to move and can’t afford to hang onto the condo, it could become one of the worst downward spirals in San Francisco.

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