Pipeline

Condo Conundrum

When it comes to condominiums, banks have yet another disincentive to take ownership of distressed homes: They would have to pay association dues.

It is not unusual for a bank to allow someone to remain in a Florida condo for years "not making payments," said Gary Poliakoff, of the Fort Lauderdale law firm Becker and Poliakoff, who represents condo associations throughout the Sunshine State.

And with delinquency rates in some condo communities running as high as 40%, the remaining owners (many of them seniors living on fixed incomes) are being forced to shoulder the unpaid association fees, Poliakoff said.

"The banks will go through the footwork of foreclosure, but they won't take title, because then they are liable for paying assessments just like other owners," he said. "So a smaller and smaller number of unit owners are being asked to bear the cost, which is causing further economic stress."

Association dues cover things like water, sewer, electricity and a building's maintenance.

In two recent cases, Poliakoff said, the borrowers vacated their condos and relinquished ownership to their lenders through quitclaim deeds. The associations then assessed the banks for common expenses from the time the deeds were recorded. But the banks took the position that they never "accepted" the deeds and therefore were not the owners and not liable for the maintenance. In one of those cases, a court upheld that position.

"Almost no lender will, even after obtaining a judgment of foreclosure, take title," said Poliakoff, who is promoting his book "New Neighborhoods: The Consumer's Guide to Condominium, Co-Op and HOA Living," co-written with his son Ryan Poliakoff.

As American Banker has reported, lenders around the country have in many cases dragged out the foreclosure process for various types of homes to avoid recording losses and the attendant hits to capital.

Eye on MI

Two mortgage insurers have recently been given the OK to keep writing new business even if their risk-to-capital ratios exceed the 25-to-1 maximum permitted in 16 states.

In a regulatory filing Tuesday, MGIC Investment Corp. said Freddie Mac granted a newly formed subsidiary approval to write new business in those states in the case its main operating unit fails to meet capital requirements. The waiver is good through 2012. The subsidiary, MGIC Indemnity Corp., had already received similar approval from Fannie Mae and the parent company's main regulator, the Wisconsin Office of the Commissioner of Insurance, has waived the capital requirements.

Also this week, PMI Group Inc. said Fannie granted a subsidiary approval to write business. The Arizona Department of Insurance, the company's primary regulator, said it would permit PMI's main operating subsidiary to write insurance in that state even if it fell below capital requirements.