Court ruling could
help condo associations go after investor-owners who don't pay fees
Miami judge's order sets
Daniel Vasquez on condos
| Condo columnist
4:39 PM EDT, May 19, 2009
To beat the bad economy,
many South Florida investor-owners of homes and condominiums are collecting
rent from tenants but skipping out on their own association fees.
Doing so sets off a vicious
financial cycle. Associations must slash services and raise fees for owners
who do pay to make up lost revenue from investors not paying their fair
share. But a recent South Florida court decision makes it far easier for
community associations to get their hands on that money, particularly when
it involves multiple deadbeat investors.
A Miami-Dade County judge
in March ruled that associations can file a single "blanket" receivership
order to go after multiple unit owners and their rent payments to cover
past due fees. Associations are not only able to siphon rent payments to
cover overdue fees, but in some cases up to a year's worth of payments
in advance. And already associations are lining up to take advantage.
"It's the last option for
associations in dire straits because of this problem," said Javier "Jay"
Lopez, property manager of The Oaks at Miami Gardens, which won the first
order to divert rent money from investors in foreclosure to the association.
Until now, receivership laws
that rely on court-approved professionals to act as bill collectors were
used on a one-unit-at-a-time basis. But they were rarely tapped by associations
because they were costly to file -- upward of $2,500 in filing and attorney
The Oaks' attorneys, however,
argued the laws should also be used on a "blanket" basis, which means associations
pay once to file a court motion that covers all units in a development
currently in foreclosure and those that fall into trouble later.
"In this upside-down market,
some investors are trying to recoup as much money as they can for as long
as they can," said David Arnold, a founding partner with Association Law
Group, which represents The Oaks and approximately 200 associations across
Florida. "To do that, they stop paying their mortgage and maintenance fees
while collecting rent. They bleed associations for as long as they can."
Of 61 units in The Oaks association,
about half are in foreclosure and owned by rent-collecting investors. Some
have not made a payment to the association in two years. Typically, they
pocket about $1,200 a month from each tenant but fail to pay about $250
a month in association. In turn, the association has had to raise fees
for those owners who do pay. The Oaks should have been collecting $11,000
in maintenance fees each month, but scraped by on about $3,000 per month.
The results have been devastating.
"At some points this association
has been in arrears with every vendor and has been within a day or two
of having the electricity and water shut off," Lopez said. "The garbage
has been cut twice."
Since the blanket receivership
order, Lopez said four investors in foreclosure have started paying.
These receivership laws are
only being used to collect rent from tenants whose landlords have stopped
paying maintenance fees while under foreclosure by the association. And
the association itself does not go into receivership; individual owners
Arnold said the phenomenon
was not as widespread as it is today when the real estate market was strong
and investors were making big profits.
"Today this is applicable
to nearly every association in Florida," Arnold said. "And the financial
impact is tremendous on every association when just one or two unit owners
are doing this."
Other associations are following
The Oaks' legal lead. "We have 10 filings on the behalf of other associations
in the hopper now," Arnold said.
That includes The Villas
at Tuscany Condominium Association in Sunrise, which has 234 units. "About
24 are in foreclosure and another 30 are delinquent, and a majority of
those are owned by investors who we know are collecting rent but not paying
us and leaving us to struggle," said association secretary Kristen Torrado.
"That's why we have to look at this receivership option."