 Ken Arnold provides a lifeline to condo associations. |
A condo association typically needs 80% to 90% of owners to pay their monthly or quarterly fees in order to avoid serious financial problems. But developers who control unsold units, lenders who are trying to unload a foreclosed property and unit owners in financial distress all are disinclined to pay their association fees.
That means that many condo associations “face a Hobson’s choice — raising assessments or cutting maintenance services to cover the deficit,” says veteran real estate attorney John Sumberg, managing partner at Bilzin Sumberg Baena Price & Axelrod in Miami. “There’s a tipping point where owners simply won’t pay double or triple the assessments.”
While the problems are worse in Miami, with its high level of new condo construction, “this is a statewide problem that will continue to get worse because the market isn’t likely to turn around soon,” says Martin A. Schwartz, a Bilzin Sumberg partner.
Ken Arnold, president of Association Financial Services in Hallandale Beach, agrees. “I would hate to be in a building where I’m covering the cost of the delinquent owners,” he says. “But a lot of these financial issues can be avoided, even in associations with numerous investor properties.”
Recognizing the market change, Arnold founded Association Financial Services in 2006 with two partners with a focus on handling receivables: The company pays the association its total monthly assessment, then collects from unit owners. Only about 60% of owners at Captiva Lakes Villas in Miami’s Kendall suburb were paying their monthly fees, says treasurer Joseph Bayne. After engaging Association Financial in spring 2007, the association was able to balance its books and obtain a bank loan to pay for repairs to buildings damaged by Hurricane Wilma in 2005.
“Now, we have been totally unaffected by the current situation with foreclosures, even though a high percentage of owners were investors hoping to flip their condos,” Bayne says. “Those people are now forced to rent their units in order to hold on to their properties.”
Association Financial Services typically charges late fees and interest and keeps those charges. In a foreclosure, it gets paid after the sale.
Sumberg advises condo buyers in new buildings to ask the developer for financial information about the association. Buyers should try to determine how many units are occupied and paying association fees. “With condominium ownership, you are dependent on other people,” Sumberg says, “making the association’s finances an important issue for buyers.”