Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, April 7, 1991 TAG: 9104080352
SECTION: HOMES PAGE: E-5 EDITION: METRO
SOURCE: JANE BRYANT QUINN/ WASHINGTON POST WRITERS GROUP
DATELINE: NEW YORK LENGTH: Medium
Condo buyers acquire not only a home but a community. You pay monthly assessments to cover the community's facilities: landscaping, garbage removal, lobby upkeep, insurance and so on.
If other residents of your condo don't pay their share, your own lifestyle and investment are in trouble. The building's budget may be cut, reducing services, deferring important maintenance and forcing residents to do their own lawn mowing and garbage disposal. Assessments may rise to cover the building's essential bills. That's one of the hidden financial risks that buyers rarely think about in advance.
Serious delinquencies on conventional condominium mortgages rose by 31 percent between 1990's first and fourth quarters, reports Dan Feshbach, president of Mortgage Information Corp. in San Francisco. The current rate: 0.93 percent, compared with 0.53 percent on single-family homes. (A delinquency becomes "serious" when payment is more than three months late.)
No one collects statistics on unpaid monthly assessments but they're believed to be much higher. Strapped condo owners typically let their assessments slide long before defaulting on their mortgage payments.
A condo's homeowners' association has the power to move against delinquents. Although procedures vary according to the state and to the condo's own bylaws, a lien can generally be slapped against the property. The condo can also foreclose or bring a lawsuit for past money due.
Most cooperative apartments can actually evict a defaulter and put his or her apartment up for sale, says attorney Seth Emmer of the Boston law firm Gitlin, Emmer & Kaplan.
"The threat of a lien has a surprisingly therapeutic effect on anyone who isn't a hard-core deadbeat," says attorney Wayne Hyatt of the Atlanta law firm Hyatt & Rhoads. "Most delinquents pay up when they get a pointed letter from a condo manager."
"I tell every condo board of directors that you have to be a bastard about it," says Washington attorney Benny Kass. "If they can't pay when they're one month behind, how will they pay when they're three months behind?"
To protect themselves, condo-owners' associations should:
(1) Charge a late fee on assessments even one day overdue.
(2) Send out a delinquency notice every time an assessment isn't paid exactly on the due date. That stops residents from thinking that this debt can safely be allowed to slide.
(3) Include with the delinquency notice a list of the legal remedies the condo will take if the assessment isn't paid.
(4) Follow through. If the money - or a deferred payment agreement - isn't forthcoming within a week, file the lien and begin further legal action.
(5) Treat everyone alike. If you don't apply your collection policy uniformly to all residents, you may not be able to collect from anyone, Kass says.
Would-be condo buyers should:
(1) Ask about the default rate. Avoid any building where more than 10 percent of the owners are behind on their assessments.
(2) Inspect the building's budget. It should not assume that everyone will pay on time. A well-run building sets up a reasonable reserve for defaults. It also sets aside a sufficient sum of money to pursue defaulters, Emmer says.
(3) Avoid a building that doesn't hold much money in reserve for emergencies. The monthly assessment may look low but you'll pay the piper if the roof needs repair or some residents default.
(4) Avoid any building where more than 30 percent of the units are held by investors as rental properties. Investors are more likely than owners to default.
Condo owners who can't pay should tell the board immediately and propose a deferred-payment schedule. If your problem is temporary, something can usually be worked out.
by CNB