Revenue-starved condominium and homeowners associations struggling to keep the taps running and the lawns mowed have found a novel way to squeeze money from units that don't pay what they owe.
It's called a reverse foreclosure, a tool that can force banks to pay association maintenance fees when unit owners don't.
It's a way for associations to halt the decline that begins when one owner quits paying maintenance fees, followed by another, then another, forcing a reduction in general maintenance, driving down property values even more, and leaving a community riddled with vacancies and vandalism.
Also, it's a way for associations to stick it to banks, which they are convinced have been sticking it to them since the real estate meltdown began.
Banks, for their part, deny any dishonorable intent and say they are just protecting their interests, as any prudent business would do.
Here's how a reverse foreclosure works: When a home or condominium owner stops paying the mortgage, the bank files a notice of foreclosure to safeguard its stake. After that, some banks deliberately delay the process of taking back the property.
They take their time because, the delinquent unit is often worth less than the outstanding mortgage — called "upside-down.''
Banks are in no rush to have upside-down properties on their books.
Delaying foreclosure can be a nightmare for homeowner and condo associations. When people stop paying the mortgage, they frequently stop paying maintenance fees. As long as a foreclosure is in limbo — and the process can take years if a bank wants to slow things down, associations say — unpaid maintenance fees pile up.
Under a reverse foreclosure, the association files its own foreclosure notice and takes title, which is its right after the homeowner stops paying maintenance fees. The association can't sell because of the bank's lien. But it can renounce its claim on the property in court and ask the judge to give the title back to the bank.
Then the bank has to pay the fees.
It's a hardball tactic, but condo and homeowner associations say they have been forced to resort to it because the Legislature, beholden to lenders and their lobbyists, refuses to make the banks take over the units and cover the unpaid bills.
Although reverse foreclosure is a new concept, it could become very popular very quickly. In a recent survey, 60 percent of Florida condo and homeowner associations reported that half of their units were two months behind in paying maintenance fees.
When unpaid fees become an epidemic, associations sometimes have to charge "special assessments'' to owners in good standing to make up for lost revenue and cover the cost of utilities, upkeep and insurance.
Special assessments cause fierce neighbor-vs.-neighbor resentment, and can trigger a domino effect — even more units sliding into default.
Although a reverse foreclosure sticks a bank with a property it doesn't want, Florida law gives the lender a break on the outstanding bill. Under existing statutes, banks cannot be forced to pay more than 12 months of past-due homeowner association fees or 1 percent of the overall mortgage amount, whichever is less. In the case of condos, the cap is six months.
The remainder is written off as bad debt by the association.
A number of new bills proposed for this legislative session could offer associations some relief. One would turn the six-month cap on condo back-payments into a 12-month cap. Another would wipe out caps entirely.