LAKEWOOD RANCH — As the number of home foreclosures in Southwest Florida has risen over the last few years, desperation over how to make sure assessments owed to homeowner and condominium association son foreclosed units are paid has become an equally dismal challenge.
But a recent Lakewood Ranch case may shed light — and hope — into a scenario in which banks have traditionally had the upper hand.
On March 17, Manatee County Circuit Court Judge Janette Dunnigan formally sanctioned the Bank of New York and its attorney to pay nearly $13,400 to the Moorings at Edgewater Condominium Association for failing to comply with court orders that ultimately would speed up a foreclosure process that has been ongoing since early 2007. The Moorings’ association is owed about $14,000 in overdue assessments and other fees.
“This case shows there’s got to be a line where the court says enough is enough,” said Moorings’ attorney Scott Petersen of the law firm Becker & Poliakoff.
The payment is due within 60 days of the order. So far, neither the bank nor its attorney have responded, Petersen said.
CREATING CASE LAW
When Petersen took the Moorings’ case in mid-2009, not many court decisions had been made in regard to how long banks could take to foreclose on property.
Then in December 2009, Florida’s Third District Court of Appeal ruled that ideas of equity and fairness are not grounds for requiring lenders to pay association fees while a case is still pending against a unit owner. The case, Petersen said, came as a blow to condo and homeowner associations, which were trying to use the argument to recoup assessments owed to them.
Petersen changed his tactic and filed a motion to compel. The court agreed, ordering the bank to move its mortgage foreclosure case along on or before June 29, 2009. The bank did not comply, and its attorney failed to appear at several subsequent hearings or respond to other court orders and inquiries by Petersen.
Last month, the court granted an order to show cause, ruling the bank must pay the regular and special assessments because of the length of the delay.
Petersen said the concept of asking the court to set and enforce deadlines for bank foreclosures won’t be applicable in every case, but it now has proven to be a mechanism by which associations can attempt to push banks forward in the foreclosure process.
David Muller, co-executive director of the Community Association Leadership Lobby, agreed.
“Anything associations can do to speed up the process is going to help them,” he said. “Scott’s case is real important because it shows (associations) have a friend in the local judges.”
As Petersen explains it, banks have little incentive to foreclose on properties quickly, much to the detriment of associations.
First, banks must begin paying association assessments as soon as they take title of the property. The longer they wait, the less they have to pay. For condominium associations, for example, banks only must pay the lesser of the last six months of assessments or 1% of the mortgage. For homeowners’ associations, banks pay the lesser of 12 months of assessments or 1% of the mortgage. If a case draws out for three years, banks pay associations only what is required by law, often causing associations to receive little money back compared to what they are owed.
Second, once banks begin the foreclosure process, they must declare it as a bad debt. And last, once a bank takes control of the property, it assumes responsibility for its upkeep.
“It’s one more headache, one more piece of property they have to sell,” Petersen said.
But for an association, those factors equate into thousands of dollars in lost assessments by which obligations — such as landscaping maintenance — can be paid. Some, such as the Moorings, are in relatively good shape and have not yet lost a single penny in assessments or attorneys’ fees because of their proactive approach, said Rick Freyman, treasurer for the Moorings at Edgewater Condominium Association. However, other associations have not been so fortunate. Muller said he’s seen cases in which at least 25% of the units in a development are under foreclosure.
“If you have a situation where you have 100 condominiums and 30% are in foreclosure, that’s an awful lot of assessments dollars that aren’t going to be collected,” Muller said. “The costs (for the associations) are still there, but there’s 30% less coming in. These associations are being forced to cut as much as they can and (sometimes) they have to specially assess members or raise assessments (because of it).”
Monthly associations fees vary greatly, ranging from just $25 or so a month to several hundred dollars a month. In the Tadmore case, assessments were more than $900 monthly.
Petersen and Muller agree the failure of banks to foreclose swiftly may, in part, be because of the number of homes going into foreclosure and bombarding the court system. However, they also said foreclosure cases that would have lasted four to six months are now lasting an average of two years.
“The feeling on our part is that the banks are doing this intentionally,” Petersen said.
Petersen said it’s much easier to work with banks and their attorneys to avoid litigation because the process ends up costing associations less and produces better results. And in many cases — such as when assessments owed are $1,000 or less — it may not financially be worth pursuing.
But in some cases, like that faced by the Moorings, a more aggressive approach is necessary.
Muller said associations are facing another battle in the legislature as state representatives consider a bill that would allow for non-judicial foreclosures. It essentially would allow the foreclosure process to be taken out of the court system and handled by banks. If the bill passes, cases such as the Moorings’ would not ever be heard before a judge.
“The judge acted as a referee and blew the whistle against the bank,” Muller said. “If we take that entire process out of the court system, we might be left in a situation where there’s no court oversight.”
Contact Pam Eubanks at email@example.com.