Monday, March 23, 2009

City Life

More Than A Mortgage
By Alexandra Gardell

JoAnne Chernish, 26, lost her job as a receptionist when her company downsized and has since re-enrolled in college to complete her bachelor’s degree. She is now living with anxiety that she will be unable to meet her monthly condominium mortgage and association fees. “I might be living on the streets soon because I’m about to run out of unemployment and I don’t have any job opportunities until after I graduate this spring,” Chernish says.

Chernish lives in Beacon Hill, a New Jersey condominium community that was built in 1989. She is part of the “Mount Laurel Program” that provides affordable housing units with lower assessment fees to lower income residents. Chernish says that her current financial situation has forced her to put payments like medical bills on the back burner because her housing fees are a priority. “I need a roof over my head,” she says anxiously.

JoAnne Chernish has to decide which bills to pay each month.

For condo owners, it’s not just mortgage payments, but also association fees, or assessments that cover costs for maintaining common areas that come due each month. The current Beacon Hill association fee is $200 a month.

“We’re responsible for everything from the paint on the walls out. That monthly fee takes care of the landscaping, sidewalks, parking lots, the pool, and all common amenities,” says Carole Branin, the Community Association Manager for Beacon Hill.

Beacon Hill, like a number of housing communities throughout the US, is feeling the effects of the subprime mortgage bust. At the time it was built, people with limited incomes could qualify for adjustable rate mortgages enabling them to purchase homes that they really could not afford. In this case, the initial monthly mortgage rate started very low, making ownership appear within reach. A few years later, when these homeowners had settled in, their mortgage rates began to rise to levels that they could not afford.

Attorney Bill Singer, who has been hired by Branin’s association to resolve some delinquent accounts explained that, “Four or five years ago people were putting down 1% or 2% to buy houses they couldn’t possibly afford.” These skyrocketing rates caused many condominium owners to ask themselves the question of which was more important to pay off: their monthly mortgage or their monthly association fee?”

Singer says most people caught in this predicament opted for paying their mortgage every month, not realizing that the condominium association has legal rights to the money as well. The association then hires an attorney to handle the collection process. Owners will get a collection letter stating the amount owed. If there is no response, a lien may be put on the property, which means that the unpaid assessment will be documented in public records. The next step is filing a judgment lawsuit against the individual.

For condo owners who have fallen into foreclosure, either by the bank or the association, there’s a pecking order as to who collects money in the event of foreclosure: first is the bank that holds the mortgage, second is the association, next come any other creditors that may have lent money to the homeowner.

The worst case scenario is a person is up to date on their mortgage but very delinquent on their association fees. This can lead to the association foreclosing on the unit and not the bank. The association then gets stuck with the unit, spends money to fix it up, and then is unable to sell it.

“I have had some owners come to me and say they can’t afford their assessments,” says Branin. “I don’t want to see anybody lose their home, so I say, ‘Draft a payment plan that you will pay X amount on specific dates and present it to me and we’ll see what we can work out.’ We haven’t had to actually foreclose on anyone in my property yet, but there are some condo owners who are walking a tight rope,” he says.

Singer said that he has definitely seen increases of late payments in recent months, due to many people being dislocated from their jobs. “I work with about twenty condominium associations, and I tell those clients that it’s the most aggressive associations that protect themselves. When they tell me someone owes $6,000 or some other high amount I ask them, ‘Why didn’t you do something about this then?’ You’ll pay whoever puts the most pressure on you.”

Singer adds, “I find that condo owners respond to a threat of foreclosure, because it means there’s fear that they could actually lose their house. That tension makes them respond more than any monetary charge.”

What’s happening now?
President Obama recently proposed the “Making Home Affordable Plan,” in which the federal government would bailout homeowners who are delinquent in their mortgages and association fees to help people stay in their homes. “Taxes and utilities costs are all up now,” says Branin. “Who’s going to bailout all of these homeowners? Mr. Obama. I don’t know how, but that’s apparently the plan.”

In addition, association fees and taxes are being raised to help associations meet their demands. “If ten out of one hundred owners aren’t paying, then the other 90% need to pick to it up,” says Singer. “It’s easy to feel jilted, but the associations still have the expenses. It’s everything, shoveling snow, cutting the lawn, and they are getting the services but not having to pay for them. Let me just say we have a lot of people come in to pay on May 15 because they want to use the pool.”

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