Florida HOAs Begin Looking To "Reverse Foreclosure" Tactic To Stick Lenders With Title To Unwanted, "Upside Down" Condos

In Miami, Florida, The Miami Herald reports:

• Revenue-starved condominium and homeowners associations struggling to keep the taps running and the lawns mowed have found a novel way to squeeze money from units that don't pay what they owe. It's called a reverse foreclosure, a tool that can force banks to pay association maintenance fees when unit owners don't.

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• Here's how a reverse foreclosure works: When a home or condominium owner stops paying the mortgage, the bank files a notice of foreclosure to safeguard its stake. After that, some banks deliberately delay the process of taking back the property. They take their time because, if it's like most South Florida properties, the delinquent unit is worth less than the outstanding mortgage. In the lingo of the trade, such units are "upside-down.'' Banks are in no rush to have upside-down properties on their books.

• Delaying foreclosure can be a nightmare for homeowner and condo associations. When people stop paying the mortgage, they invariably stop paying their maintenance fees. As long as a foreclosure is in limbo -- and the process can take years if a bank wants to slow things down, associations say -- unpaid maintenance fees pile up.

• Under a reverse foreclosure, the association files its own foreclosure notice and takes title, which is its right after the homeowner stops paying maintenance fees. The association can't sell because of the bank's lien. But it can renounce its claim on the property in court and ask the judge to give the title back to the bank. Then the bank has to pay the fees. It's a hardball tactic, but condo and homeowner associations say they have been forced to resort to it because the Legislature, beholden to lenders and their lobbyists, refuses to make the banks take over the units and cover the unpaid bills.

For more, see Desperate condo, homeowner groups given new way to grab overdue fees (A new maneuver called reverse foreclosure helps condo and homeowner associations collect badly needed overdue maintenance fees).

In a related story, see Blanket receivership: Another way to get someone to pay overdue fees (Blanket receiverships are still another new method to give condos desperate for maintenance money a chance to collect what is owed).