Members of the Vintage East Condominium Association in Miami Beach got tired of waiting for JPMorgan Chase to foreclose on unit 9, so they sued the bank in February to take control of the property.
In June, more than four years after the owner stopped making payments, a judge ruled that Chase lost its claim to the $144,000 mortgage. The apartment is now on the market for $87,500, and the association may stave off insolvency with proceeds from the sale and a new owner who pays monthly dues, said Jane Losson, a board member at the complex. Four of the 11 other owners at the property are also behind on dues.
"I find it an outrage that the bank had decided to do nothing and the other owners got stuck," said Losson, who has had her Vintage East condo since 2004. "If we get this unit sold, we'll have a little money."
Financially troubled condo associations are taking banks to court as foreclosure delays enable delinquent homeowners to stay in their buildings for years, often without paying dues that keep boards running.
"The lenders are stalling foreclosures," said Ben Solomon, the Miami Beach attorney for the Vintage East association. "Our complaints say the banks abandoned their interest and either need to accept responsibility for the title or walk away."
'Mortgage Terminator'
Solomon, whose Association Law Group represented homeowner boards in 16 Florida counties, also won what he calls "mortgage terminator" suits in claims against Bank of America, Citigroup, Deutsche Bank and Wells Fargo, court records show.
About 60 million people, or one in five Americans, live in residences with condo or homeowner associations, according to the Community Associations Institute. States with some of the highest foreclosure rates are also among those with the biggest share of populations in homeowner associations, said Frank Rathbun, spokesman for the 30,000-member trade group.
"About 50% of our members said the housing crisis and economic downturn have had a severe or serious impact on their association," Rathbun said.
Pushing Banks
About a third of Californians live in the state's 45,000 condo and homeowner associations, said Kelly Richardson, an attorney who specializes in homeowner association law. "Banks have been slow catching up to reality," said Richardson, with the firm of Richardson Harman Ober PC in Pasadena. "When pushed, they'll step up to the plate, but you have to push them."
In Nevada, the state with the highest rate of foreclosure filings, according to RealtyTrac, delinquent homeowners owe associations about $150 million in back dues, said Steven Parker, president of Red Rock Financial Services, which collects debts for associations. "It's probably at least $1 billion for the whole country," said Parker, whose company is a unit of FirstService. "Prior to foreclosure, we get almost nothing from banks. After the foreclosure, probably 30% of what we're collecting is from banks."
U.S. foreclosure filings — notices of default, auction or seizure — fell to a nearly four-year low in July as lenders and government agencies increased efforts to keep delinquent borrowers in their homes and paperwork delays slowed repossessions, RealtyTrac reported Aug. 11. Filings have plunged for 10 straight months after state attorneys general began probing the practice of robo-signing, in which lenders and servicers pushed through default documents without verifying their accuracy. The decline has been steepest in Florida and other states that require courts to approve foreclosures.
The bank delays have left homes in the delinquency process longer. U.S. homeowners facing foreclosure averaged 587 days without making a mortgage payment in June, up from 251 days in January 2008, according to Lender Processing Services Inc.
Florida Delinquencies
In Florida, where 14% of homes with a mortgage have a foreclosure notice, the average delinquent borrower hadn't made a payment for 719 days, or almost two years, LPS data shows.
As of June 30, 18.68% of home loans in Florida were more than three months delinquent or in foreclosure, the most of any state and more than double the U.S. average of 7.85%, the Mortgage Bankers Association reported this week. "Florida's numbers continue to drive national numbers," Jay Brinkmann, chief economist of the MBA, said during an Aug. 22 news conference.
Banks often hold off on a foreclosure as long as they can to avoid paying dues, property taxes and occupancy costs, said John Rickel, chief executive of Association Dues Assurance, a St. Clair Shores, Mich., company that collects fees for community associations in 20 states. "We probably have 100 to 300 banks that we're trying to collect from right at the moment," Rickel said. "We're always 100% successful in collecting against banks, because they do have the funds available."
Associations' rights vary based on state law. In Nevada the groups have superpriority, which means they can collect up to nine months of back dues plus costs when a residence sells, even after a foreclosure.
Florida law limits homeowner associations from collecting more than 12 months of back dues or 1% of the outstanding mortgage, whichever is less, after a foreclosure. That cap often doesn't apply to banks, said Frank Silcox, president of LM Funding, a Tampa company that advances cash to condo associations in exchange for the lien rights on past-due accounts.
"Our attorneys look for a reason the foreclosing bank isn't entitled to the minimum," Silcox said. "Nine out of 10 times, we get the bank to pay." In one Miami Beach condo case, LM Funding collected $52,000 — counting late fees, 18% interest and collection costs — instead of the roughly $3,000 the bank would have paid under the state limit, Silcox said.
About 40% of LM Funding's collections come from banks, with the balance from individual homeowners and through short sales, when the lender agrees to sell a property for less than the mortgage balance, Silcox said.
Banks can be a lucrative source of delinquent dues, but they're also a challenging target, said Ellen Hirsch de Haan, an attorney with Becker & Poliakoff PA in Clearwater, Fla., who represents homeowner associations. "The banks are setting and then canceling hearings before the final judgment is eventually entered," de Haan said by email, "then setting and canceling the sale date, then failing to record the certificate of title, thereby postponing the actual transfer of title to the bank for months, or even years."
Bank of America, with 1.1 million mortgages at least 90 days delinquent, addresses nonperforming loans as fast as possible while complying with the law, Jumana Bauwens, a B of A spokeswoman, said by email. B of A loans in which borrowers were at least three months late were valued at $32.5 billion at March 31, up from $26.97 billion a year earlier, according to FDIC data.
"After exhausting all home-retention efforts, it is in the best interest of servicers and investors to move the foreclosure process along while abiding by Florida laws," Bauwens said.
Bank Trustees
Solomon's lawsuits start by suing the homeowner for unpaid dues as a way of seeking title to the property. Then he files a claim against the bank, contending the nonperforming loan restricts the association's right to sell the property because the mortgage is worth more than the home.
The bank defendant is usually a trustee for the loan that was sold into a mortgage-backed security, a legal structure that can leave the party responsible for a mortgage unclear. Citi and Deutsche Bank declined to challenge suits brought by Solomon, because they were trustees, not the servicers of the delinquent loans, bank representatives said. In March 2010, Citi lost a suit over a Miami Beach condo with a $136,000 mortgage, according to court filings.
Deutsche Bank in September forfeited its right to a unit with a $149,300 mortgage to the Palm Aire Gardens Condominium Association Inc. in Pompano Beach, Fla.
"Litton Loan Servicing, the loan servicer for the loan, and not Deutsche Bank as trustee, was responsible for all foreclosure activity relating to the loan," John Gallagher, a Deutsche Bank spokesman, said by email.
Litton spokeswoman Donna Marie Jendritza wouldn't discuss the suit. Litton, which Goldman Sachs is selling to Ocwen, wasn't named in the complaint. "We sue whoever holds the mortgage," Solomon said. "The bottom line is the bank had a loan and the mortgage got terminated."
JPMorgan Chase, the lender in the Vintage East case, had $2.5 billion in second-quarter costs tied to faulty mortgages and foreclosures. "There have been so many flaws in mortgages that it's been an unmitigated disaster," Chase CEO Jamie Dimon said in a conference call July 14. "We just really need to clean it up for the sake of everybody. And everybody is going to sue everybody else, and it's going to go on for a long time."
The bank's mortgage at Vintage East was on a studio apartment with $24,000 in unpaid back dues, said Losson, the board member. "We're still in precarious condition, but we can see our way out now," said Losson, who estimated the condo association was owed $60,000 in delinquent dues. "We went up against JPMorgan Chase and we won. It's a good story. There's a way out of the morass."
