Thursday, July 9, 2009

Condo Association Bankruptcies Begin

From the Daily Business Review $1 million debt sends condo association into Chapter 11

In a move an increasing number of condo associations are expected to follow, the Maison Grande in Miami Beach has filed for bankruptcy.

Facing almost $1 million in claims by unsecured creditors, a troublesome recreational lease, and at least 100 unit owners delinquent on payments of their fees, the association filed a Chapter 11 petition last month in U.S. Bankruptcy Court in Miami.

As one of the first condo association bankruptcies of the current economic crisis, “it’s definitely cutting edge,” said attorney Mark Schorr, a solo practitioner in Fort Lauderdale who represents the Maison Grande association.

Kaye represents a Tamarac condo association that is considering bankruptcy. With half of its 280 unit owners delinquent on their maintenance fees, the association is in the red to the tune of $50,000 per month, he said.

Kaye also represents a Palm Beach County condo association that is likely to file for bankruptcy after losing a court case against a roofing contractor.

A judgment of $130,000 could grow to more than $300,000 after attorney fees and court costs are added, he said.

“They can’t afford that, and 20 percent [of 120 unit owners] already are delinquent in paying fees,” Kaye said.

These associations, which he declined to name — and many more — are likely to file for bankruptcy protection as they run out of funding options, he said.

Meanwhile, unit owners in foreclosure have no incentive to pay their association fees, said Miami attorney Douglas Snyder, a solo practitioner who represents the 220-unit Greenwich condo in North Miami in its Chapter 11 bankruptcy filed in March.

Snyder said the association had been sued by service providers for non-payment of about $750,000. The court ordered the association to begin making payments “and it was bleeding them dry,” he said. “This way, they can handle everyone at the same time.”

About 20 percent of the unit owners are in foreclosure. Association president Lidia da Cunha did not reply to an e-mail seeking comment.

The financial crisis that is pushing condo associations toward bankruptcy is only going to worsen, said Martinez Molina.

The situation is rough the the HOAs, but the dire situation for the condo owners is only going to get worse. With 15% or more of the HOA dues delinquent, Fannie, Freddie, and FHA will not make loans for purchases in the complex. When future sales now need to be cash-only, low prices will plummet much-much lower.

Expect many condos to cut services, raise fees to existing payers, and for prices to plummet.