Nasty Neighbors

In a Wall St. Journal article Dec. 31st, reporter Dan Fitzpatrick writes about an aspect of the housing crisis that hasn’t gotten a lot of attention – condos.  Residents, mostly retirees, at a 1970s built condo village in Florida are at each other’s throats because of delinquencies in homeowner (HOA) fees. 

Some residents have lost jobs and have stopped making both mortgage payments and the HOA fees as well, making it difficult for the HOA to provide adequate security and common area maintenance of the grounds, pool and clubhouse.  Some residents who have the ability to pay the mortgage and fees have simply stopped doing so.  Some non-paying owners continue to get rental income from their tenants, pocketing the money while they wait for the bank to foreclose, a process that has been delayed in some cases for two years.

Stepping out in front of the banks, the HOA has sometimes started their own bankruptcy proceeding for late fees, an agressive tactic that has prompted accusations that HOA board members were pressing bankruptcy so they could buy the condos as a bargain rental property.

A neighbor selling a house at a loss a year ago told me, “You’re not supposed to lose money in real estate” as though there was a law protecting all real estate investments.  If only it were so.

Three Days of the Condo

Like Robert Redford’s character in the movie “Three Days of the Condor”, some condo developers may feel like they went out to the deli to get a few things and, when they got back, found that the world had changed drastically.

Fannie Mae, the quasi-government agency that backs a majority of the mortgages in the U.S., announced that, effective March 1st, it would stop “guaranteeing mortgages in condo buildings where fewer than 70% of the units have been sold”, according to the weekly Property Report in WSJ, 3/18/09. The previous minimum was 51% units sold.

A N.Y. real estate firm “estimates that 93,000 new condo units will be completed this year, a 28% increase in new inventory from last year.” At the end of 2008, there was a 14 month condo supply, a decade long high. Some developers are turning their buildings into rental apartments. There is demand for the condos but a lack of financing. Some buyers, who put down deposits on unfinished condos, are walking away.

We interrupt this broadcast to bring you an important message from History, a sponsor of our show, the Present:
“Sales of apartment buildings to condo converters reached a record $13.3 billion last year, up from $3 billion in 2003, according to Real Capital Analytics.” This was reported in a NY Times article in May 2005.

The article notes that “the trend is driven by low mortgage interest rates that have encouraged renters to become homeowners, leaving landlords in many areas with falling occupancy rates and forcing them to lower rents and make other concessions to keep their buildings full.”