New Wave Of Foreclosures Currently On Hold As Lenders Drag Feet In Dealing With Delinquent, Underwater Condo Owners

A recent column in Barron's addressed the problem of mortgage lenders dragging their feet on condominium foreclosures in order to avoid taking title to units in order to avoid becoming responsible for footing the bills for the HOA's maintenance fees:

• IF A CONDOMINIUM OWNER is behind on his mortgage, he usually isn't paying his condo association dues either. And that, oddly, could be helping to prevent the already roaring rate of U.S. condominium foreclosures from becoming even worse.

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• In the most troubled markets -- think Florida, California, Nevada, Arizona and parts of the Midwest -- some condos are three years in arrears on association fees. When a bank takes ownership, it risks having to pay those fees, plus any that accrue until it resells the unit. Fourteen U.S. states now have "super lien" laws mandating that a lender pay at least part of the owed dues when it seizes a property. Ohio legislators are even fighting to make association liens in their state superior to first mortgages. In states where there's no law mandating payment, condominium associations must sue the lenders to recoup any dues shortfall, and they're not always successful.

• For lenders, the simplest way to delay -- or avoid -- paying the dues is by postponing foreclosure until a buyer turns up who's willing to shell out the accrued dues if the property is priced low enough. But in the current market, especially in the worst-hit areas, that can take a very long time.(1)

For more, see The Condo Conundrum (Lenders reluctance to pay overdue condo fees is merely postponing a new wave of U.S. foreclosures). (requires paid subscription; if no subscription, TRY HERE; or TRY HERE, then click link for the story).

(1) A new tactic in dealing with delinquent condo units where mortgage lenders are now being challenging to foreclose or get out of the way (essentially being required to decide to either take title to the financially upside down unit, or release their mortgage) was recently reported in Florida. See:

• Foot-Dragging Mortgage Lender Yields To HOA Demand; Abandons Foreclosure On Unwanted Collateral, Releases Security Interest In Condo Unit,
• Miami Judge Forces "Reverse Foreclosure" On Foot-Dragging Lender; Court Grants HOA's Request To "Strong-Arm" Bank Into Taking Title To Home.