BANKS PAYING MAINTENANCE CHARGES TO HOMEOWNERS ASSOCIATIONS

HOME OWNERS ASSOCIATION TURNS THE TABLE ON TO THE BANKS

Condo Associations in the United States that are in a financial bind from mounting foreclosures are now targeting the Lenders who have taken back units from owners in default but are themselves failing to pay their share of maintenance fees.

As more units end up in the hands of lenders, the banks and mortgage servicing companies are responsible for maintenance payments for those units. But administering the growing pool of real estate has proved challenging for lenders.

The Residences at the Bath Club Condominium Association in Miami Beach is pressing a foreclosure action against Wells Fargo as trustee for an investment pool that owns the mortgage on a unit that isn’t paying its maintenance fees. The lender owes $32,252 in late maintenance fees on the unit it took back more than a year ago. Determining exactly who is on the hook is itself difficult.

The original mortgage was issued by Mortgage Loan Specialists of Irvine, Calif. A spokeswoman for Wells Fargo said it was only the trustee for the bondholders who invested in a securitized mortgage pool. The servicer of the loan is Impac Funding Corp. of Irvine, Calif., which shares the name with the company that issued the mortgage-backed securities and is also named in the foreclosure suit, Impac Secured Assets Corp.

The lender needs to come up with the past due maintenance fees by Friday morning or it could lose the oceanfront condo in a foreclosure auction. The unit sold for $1.45 million during the height of the condo boom, according to Miami-Dade County property records. The highest bidder would get the two-bedroom condo at 5959 Collins Ave. free of a mortgage.

“An association foreclosing on a bank?” asked Bill Raphan, who runs the Fort Lauderdale branch of Florida’s Office of the Condominium Ombudsman. “I can’t say I have heard that before. It will create an interesting precedent.

Associations often complain lenders don’t pay their dues.” The number of condos being foreclosed is at a near record level, and that’s putting tremendous pressure on already cash-strapped condo associations. Typically, when a unit is in foreclosure, the owner quits paying association fees.

As foreclosures mount, revenues decrease, pinching condo associations that have to continue to pay landscapers, garbage haulers and fork out for other expenses. During a buoyant real estate market, lenders that took title of foreclosed properties were able to re-sell the units quickly. That kept nonpayments to a minimum.

But in the current housing downturn, and with buyers scarce, lenders are carrying numerous properties for protracted periods — and increasingly putting off paying fees. Wells Fargo, as the trustee, took control of Unit 901 at The Residences at the Bath Club in January 2007 after the former owner, Ciona Rosenwasser, fell behind on her mortgage payments.

In December 2007, the condo board placed a lien for overdue maintenance fees and assessments on the unit. A Miami-Dade Circuit Court judge ruled last month that the owner of the mortgage was in arrears and scheduled a public auction for Friday. Attorney Eric Glazer, who represents the association, said his client gave the lender enough time to pay up.

“Unfortunately, we are being ignored,” said Glazer, with Glazer & Associates in Hallandale Beach. Lender inaction is common in foreclosure cases, he said. “It is absolutely the first time in my 10-year career that we are foreclosing a bank,”

Glazer said. “It shows a very unique moment in history.” Several other attorneys interviewed for this article said they had never heard of an association foreclosing on a bank. Glazer predicts more condo associations — especially those for new condo towers where short-term investors bought hoping to make quick sales — will take on slow-paying lenders.

The 119-unit Bath Club — one of South Florida’s most exclusive condo projects — was completed in 2005. Unit 901 is the only unit in the Bath Club currently owned by a lender, according to public records.

State law mandates that after a lender takes title to a condo through foreclosure, it owes the association the lesser of 1 percent of the mortgage or six months of unpaid common expenses and future monthly and special assessments, Glazer said. But with so many foreclosed properties on their books, many lenders are neglecting their responsibilities, Raphan said.

In a recent statewide community association survey, more than 60 percent of respondents said lenders owning foreclosed units or homes in their communities are not paying dues to the associations. The survey was conducted by the Community Association Leadership Lobby, an advocacy group created by the law firm Becker & Poliakoff. Attorney Ken Direktor, who leads Becker & Poliakoff’s community association practice, said he encourages his lawyers to aggressively go after lenders who fail to pay association fees.

“We have had a few foreclosures with a sale date set. At that point, the bank has paid every time,” Direktor said. “Nothing has gotten past that point ... yet.” If Unit 901 sells on Friday, the association will recover the $32,252, including legal fees. Wells Fargo would keep the rest of the sale’s proceeds.

Attorney Paul Breitner, who represents community associations, said lenders are finding a way around having to pay association dues. They initiate foreclosure procedures but don’t seek a final judgment. That way, they avoid taking title to the property.

“We increasingly see banks reluctant to take control of a unit,” said Breitner, with The Barthet Firm in Miami. “They would rather keep a unit in limbo and wait until the market comes back.”