Delinquencies at condos can cost neighbors
When one of the condominiums at Dale Village, a 108-unit complex in Roslindale, fell victim to foreclosure last month, its owner left behind more than an unpaid mortgage. She also owed the condo association $9,000 in fees and legal expenses.
The association, which has sued the woman and her lender to collect the overdue balance, believes it eventually will get its money. But until it does, the complex has delayed small repairs, such as fixing broken doorbells, to focus on bigger issues, like landscaping.
"When people fall behind, that puts a strain on our budget, and we have to hold off on projects that otherwise we could have gotten done - and that's not fair for the rest of the owners," said Jose Feliciano, an association trustee who estimates Dale Village has had at least a 10 percent rise in delinquent fees in the past year, as well as an increase in foreclosures on units.
The foreclosure crisis sweeping the country is affecting more than the people losing their homes; it is also ensnaring their neighbors. When condo owners facing foreclosure stop paying their fees for shared costs such as maintenance and insurance, condo associations struggle to pay bills. And sometimes other condo owners are forced to pay higher fees to cover their neighbors' debts.
"If one owner is unable to pay, then the other owners are left holding the bag, so to speak," said attorney Janet O. Aronson of the Braintree law firm Marcus, Errico, Emmer & Brooks, which represents 2,700 condo associations in Massachusetts, New Hampshire, and Rhode Island. "Because when you buy a condo, you're linked financially with people you don't know, and you have to take the good with the bad."
Aronson's firm has seen a 150 percent increase in the delinquency of fee payments in the past two years, tracing back to when subprime mortgages exploded in popularity.
Alan Slawsby & Associates Inc., a Wellesley condominium management firm that specializes in small buildings of between four and 48 units, also has seen an uptick in delinquencies. Of the 600 units managed by the firm, between six and 10 have fallen behind on monthly fees by at least 60 days, compared to none in the previous 11 years.
"People have fallen on hard time for many reasons, and it's had a deleterious effect on these associations," said Slawsby. "If you have 300 or 400 units and a couple of people default, that barely makes a ripple in the pond. But if you have 20 units and someone isn't paying, it has a material impact on the finances of the organization."
In large complexes, unpaid fees may have minimal impact because reserve funds can make up for the shortfall or because the overdue amount is divided among so many units. But in small complexes, such as two- and three-family homes converted into condos, one unit's unpaid bills can take a toll on other owners' wallets.
But these condo owners have recourse: Unlike during the last real estate slump of the early 1990s, when some condo associations were ruined financially by unpaid fees, Massachusetts now makes it easier for condos to recover delinquencies. That has helped reduce the number of condo owners becoming saddled with the debts of a neighbor.
The "super lien" law, adopted in 1992, enables condo associations to collect at least six months worth of unpaid fees per unit in the event of a foreclosure. By giving condo associations a so-called priority lien on financially distressed units, it also places them in line ahead of lenders to collect outstanding debts.
Before the law was passed, a condo association could secure a lien on a delinquent unit, but if a bank foreclosed, the bank would receive its money before the association did when the property was subsequently sold. That often meant the association never received any money at all.
In the late 1980s and early 1990s, "it wasn't unusual for large properties to have to write off $100,000" in delinquent condo fees, said David Fisher of Fisher Financial Services, a Brookline company that does financial management for about 55 condominium complexes. Thanks to the new law, he added, "now you hardly write off anything."
Typically, when a homeowner falls behind on condo fees by at least 60 days, the condo association or its lawyer sends a reminder letter to the owner and lender. At that point, many owners work out payment plans or the lender steps in and pays the delinquent amount. If the situation isn't resolved after a second letter, the association will sue both the owner and lender. That lawsuit gives the association "priority lien" status.
Then, when the unit is sold by the owner or at a foreclosure, the delinquent fees are paid to the association from the sale proceeds.
When condo associations sue delinquent owners, "a lot of people say, 'That's not fair. Why did you do that? Why not cut me some slack?' " said Charles A. Perkins Jr., a Chelmsford lawyer who represents condo associations and whose debt-collection activities have doubled since last year. "But the association has no choice."
That's because if associations don't begin debt-collection efforts promptly, they risk getting stuck with the overdue fees. When that happens, they may have to levy special assessments, increase condo fees, dip into reserve funds, or use operating budget emergency money.
"The effect of a unit owner not paying condominium fees is to create a large burden on innocent unit owners," said attorney Henry A. Goodman, whose Dedham firm, Goodman & Shapiro, also represents condo associations. "No one in a single-family home is obligated to pay his neighbors' debts," he added, "and condo owners should not have to pay their neighbors' debts either."
Sacha Pfeiffer can be reached at pfeiffer@globe.com.
