Robber Bankers
Commissioner Jerry Libbin Takes on Tallahassee Over Lenders’ Unpaid Condo Fees
By Lee Molloy
When at the Dec. 8 meeting of the Tuesday Morning Breakfast Club, Commissioner Jerry Libbin asked how many condo owners have had special assessments levied on them due to foreclosures in their buildings, more than half of those who had identified themselves as owners raised their hands.
The results of the informal poll were not surprising.
There are roughly 42,000 condos in Miami Beach, a city of about 90,000 people, and according to a recent report by RealtyTrac.com during the third quarter of 2009 Florida had the fourth highest foreclosure rate in the country. One in every 56 homes in the state has been issued a default notice, scheduled for auction or is in bank repossession.
Condo associations across the state are hit particularly hard by the foreclosure crisis because as unit owners stop paying their mortgage, they also stop paying association fees. Those owners who remain have to make up the budget shortfalls via special assessments. When banks begin the process of reclaiming ownership of units in default, however, they often drag their heels in foreclosure proceedings in order to avoid paying those fees.
“We have a system that is designed to funnel the losses, or the bad debt, to the people that can least afford it — the other owners,” Ken Direktor, an attorney with law firm Becker and Poliakoff, told The Lead.
According to state law, when the lender takes over the property, the lender is liable to pay the lesser of the fees and assessments on the property for the six months immediately preceding taking ownership, or 1 percent of the original mortgage debt. Therefore, the bank has little incentive to act quickly, and when they do, their liability is capped.
For more than a year, Libbin has spearheaded a campaign to get the state law changed. Change on the state level, however, rarely comes easily.
“The banks don’t want to solve the problem,” Libbin said. “If you’ve got four aces in your hand when playing poker, do you want a new deal?”
Sherry Roberts, a former commission candidate and former president of the Decoplage Condo Association, agrees with Libbin’s assessment.
“It’s outrageous because [the banks] are devastating the condo market in South Florida,” she said. “They’re the ones that are providing the loans and should step up to the plate and take responsibility.”
The consequences of banks not taking responsibility for the maintenance of the units that they own is very beneficial to them but can be devastating to a condo community.
The challenge that condo associations face is that, as unit owners stop paying their fees, the expenses of operating the building continue to accrue — maintenance, landscaping, water, security, the pool, cable TV, etc, all still have to be paid for.
“All of these expenses go directly to the benefit of the first mortgage owner [the bank], to protect the collateral,” Direktor said. “But the other owners, instead of the bank, are paying for it.”
Direktor explained that the foreclosures begin to have a “cascading effect” because, in a building of 100 units, for example, if two owners stop paying their maintenance the shortfall in revenue must be picked up by the other 98 owners through special assessments. If another eight unit owners foreclose, the remaining 90 owners must make up the difference. However, “if they can’t absorb the cost, they are also forced into delinquency,” says Direktor.
Carol Housen serves as president or vice-president on the board of three separate condo associations. One of the buildings is in serious trouble.
“We have 11 units in foreclosure - out of 28,” she told The Lead, “This year we had a higher maintenance [fee], and nobody could buy in the building. We have no money for repairs. We would have to start knocking on doors to get money.”
Housen further explained that last week, after a year of no maintenance being paid, one of the units was taken possession of by a bank and quickly sold at auction. “What we’ll get is six months maintenance plus an assessment,” she said. “We’re going to get six months, but we lost 12 months of maintenance.”
Housen says that the residents of her building have been forced to take drastic measures to save money, such as eliminating the exterminator and the landscaper, measures that ultimately make the building less attractive and the units more difficult to sell.
State legislative bodies needs to help condo associations retain enough power to cut owners off from amenities, Housen says. “We’ve considered doing a condo doc revision to take away rights,” she said. For example, if an owner is renting the property and quits paying the maintenance the association has the right to collect the rent as fees.
David Leeds, a board member of the Belle Plaza Condo Association says his association is already following that policy. If the owner doesn’t pay the fees “we get the rent check,” he said.
Libbin’s Mission
Commissioner Libbin says he first found out about the problem of banks shirking responsibility for paying condo fees in the summer of 2008 when he held his first “Coffee with the Commissioner” meeting. He started to work with the city attorney and management companies to get up to speed on the problem, and started to draft a bill that would shift fiscal responsibility from condo owners in good standing back to the banks. Then in October of 2008, he held a town hall style meeting that was well received by the public, but was not so well liked by other parties attempting to get their own bill passed. “They were worried about their own version,” Libbin said.
Between October 2008 and March of this year, Libbin’s team sent their resolution out to municipalities and condo associations across the state, eventually receiving the backing of eight cities and 621 condo boards, in total representing roughly 350,000 Floridians. The resolution called for the removal of the lenders’ liability cap, and a measure that lenders would be responsible for all assessments beyond the six months cap.
Although Libbin personally took the signed resolutions to Tallahassee, he was given the short shrift by the legislature. He also believes that the senate president, Jeff Atwater, who is himself a banker, may not have the incentive to see a bill pass through both the state house and the senate.
“The senate president has bills killed,” Libbin said. “To have that much commotion and that much pressure and to have them let it die, there is something going on up there. … A strong leader could easily send it to a committee that has a buddy chairing, and kill it.”
However, Libbin isn’t taking the states indifference lying down. He is organizing a kind of march on the state capitol, taking residents on a bus trip to Tallahassee.
“The target [date] would be the third week in February to do the bus trip,” Libbin told The Lead. The goal, he says, is to have different groups coming from three different parts of the state, with one or two groups from Miami Beach.
“If you get on a bus and take the time to show up and demonstrate you’re going to get a lot more attention,” Libbin said.
What Needs to Change?
According to Ken Direktor there would be far fewer condo fee collection problems if condo associations had the benefit of priority when a property is foreclosed on. Currently the first entity to get paid on a foreclosed loan is the government, and then the main mortgage lender.
Direktor asserts that the services a condo association provides are comparable to those carried out by government and are essentially “quasi-governmental services.” Therefore, association liens should be prioritized in the foreclosure process. Especially as “the banks are being bailed out in both directions right now,” he says.
Town Hall
Libbin will hold a public forum at the Loews Miami Beach Hotel, 1601 Collins Ave., on Monday, Dec. 14, from 5 to 7 p.m. The meeting will not be open for public comment, but rather as an opportunity for residents to learn about Libbin’s bill and other bills being put forward by legislators, such as one sponsored by Florida Sen. Evelyn Lynn.
Libbin also wants to take the opportunity to sign people up for the bus trip in February.
“We have to fight the fight,” Libbin said. “And put the pressure on.”
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