January 2010

Too many homeowners associations are struggling to deal with absentee owners who've taken the "jingle mail" route—they've walked away from the home they now owe too much money on, and they've mailed the keys to the bank—before lenders have foreclosed. Even when banks have completed foreclosure and own association units, HOAs still have trouble collecting ongoing fees.

Here, we offer a snapshot of the problem in Florida, along with tips for making contact with the right people at the lender, getting assessments paid, and getting maintenance done promptly.

A Lien Threat Still Works

Matthew Zifrony, who advises homeowners and condo associations at Tripp Scott, a Ft. Lauderdale law firm, and who's also the president of a 3,000-home association, says he's still seeing Florida homes fall into foreclosure and associations dealing with the fallout. When that happens, Zifrony's collection efforts shift.

"We find in a lot of instances, after a bank takes over a property, we stop our collection efforts against the prior unit owner and within a month or two begin against the bank," he says. "Banks' failure to pay is often a function of disorganization. When they have so many units, the person overseeing a particular property is so overworked, and the payment slips through the cracks. When you send an invoice, they ignore it. Then it's turned over to lawyers, who send a letter saying, 'You have x number of days to pay, or we'll file a lien.' That usually takes care of the problem. We're finding that when the account goes into collections, banks pay up."

The same holds true when associations try to get banks to handle maintenance issues. "They may not know about maintenance problems," says Zifrony. "A nasty letter takes care of the problem."

The question many associations often face is where to send those letters demanding payment or threatening a lien. "When foreclosure happens, you get information," says Zifrony. "Send your letter to the attorney who handled the foreclosure, who has an obligation to forward it onto his bank client. Until then, if you try to resolve issues with the bank, you'll get nowhere."

When Lenders Stall

It's still common in Florida, however, for lenders to drag their feet on foreclosures. That means associations are often caught in a bind. They may have delinquent homeowners—who may have already abandoned their home—against whom they can't collect a dime. But the association can't go after the lender for assessments because the lender doesn't yet formally own the property through foreclosure.

"Up until early December, our process was to have internal controls in place to help collections," explains Robert White, managing director of KW Property Management & Consulting in Miami, which oversees about 125 associations totaling 30,000-35,000 units. "We'd send past due notices on time before we got to the point of an absentee owner. If there was an absentee owner, we'd turn the matter over to an attorney to begin a lien and foreclosure process in a timely manner. Then the attorney would file a motion in court to compel the bank to foreclose and begin status conferences with the association's attorney."

Recently, however, a Florida court threw White's process into question. "An appellate court recently held that you can't rush the bank," explains White. "As long as the bank is moving the foreclosure along, there's nothing you can do. So we're going to have to reassess how to approach this problem.

"What we're seeing is that banks are in charge," White adds. "We don't hear from them, and they don't respond to us. Then, once they line up a buyer for the property, we get a check for what the bank owed all along and a new buyer."