Condo Market Feeling the Mortgage Crunch
At Glen Waye Gardens Condominiums in Silver Spring, Md., 21 owners are more than 30 days behind on their condo fees. Two others have not paid since they bought their units, in April 2005 and September 2006, respectively. Both properties went into foreclosure.
The lost fees, which make up 5 percent of the association’s annual budget of $1.3 million, have pushed the condo association to dip into its reserve funds to fix the roof and replace a water heater.
“When those things go bad, you have to spend on them. You have no choice,” said Vicki Vergagni, president of the 214-unit community’s board. “We’ve had to use way too much of our reserves.”
In a sign that the turmoil in the bad credit mortgage industry is affecting entire communities and not just individual homeowners, condo association officers, property managers and real estate lawyers say they are noticing more delinquencies in monthly fees.
“If someone is not paying their mortgage, they’re not paying their condo fee, and the condos need money to pay bills,” said Jeffrey van Grack, a community association lawyer with Lerch, Early & Brewer in Bethesda, Md.
About one in six Americans live in a community run by a condo or homeowners association. Fees pay for such services as water, garbage removal, cleaning and repairs.
“When times get tough, either because mortgage terms start to weigh in or the economy takes a dive and people are not making enough money, you do see an uptick in delinquencies,” said Joe Douglass, a community association lawyer at Whiteford, Taylor & Preston in Washington.
Millions of Americans financed their homes in the past few years with non-traditional, adjustable-rate home loan products.
Many of these were subprime, or bad credit home loans, mortgages offered to people with poor credit or insufficient cash for down payments.
Now, many are struggling to keep up as the interest rate adjusts and their payments climb. Their escape hatches are few. They cannot qualify for a mortgage refinance because their properties are worth less than they used to be. If they sell, they would still owe money to the bank.
When home mortgages become too burdensome, the bill from the condo association becomes a whole lot easier to ignore.
Delinquencies are also increasing on investor-owned units, lawyers and property managers said. At the height of the real estate boom, investors bought properties with the intention of selling for a quick profit.
When the housing market turned, they couldn’t sell. Now, they are renting the units out, sometimes for less than their monthly home loans. To make up for the shortfall, some choose not to pay condo fees.
“We’re starting to see delinquencies where they’re not owner-occupied. It’s not just a matter of a subprime borrower,” said Thomas Schild, of Thomas Schild Law Group in Rockville, Md.,
“They were counting on increased home equity. That equity is not happening.”
Compounding the issue is the fact that many communities do not have large pots of money in reserve. It is worse for older communities because they tend to need more expensive capital improvements.
SOURCE: Centre Daily