Over the past two years in the foreclosure run-up, one of the points of contention in foreclosure contracts has been past-due condo owner association fees left unpaid by the defaulting borrower. Banks, bent on getting out of the property for as little money out of pocket as possible, have paid or not paid delinquent condo fees, depending on their bottom line.

At least two jurisdictions are putting the onus back on the mortgage holder for paying those delinquent fees. The Daytona News Journal reports the Daytona Beach Shores City Council has proposed legislation that makes it "a mortgage holder's responsibility to pay for delinquent condominium, co-op, and homeowner association fees on units in foreclosure."

The idea, says City Manager Mike Booker, came from a similar ordinance passed in Miami Beach. "Apparently they (Miami Beach) developed this in response to the large number of foreclosures they are experiencing. In short, it suggests that mortgage holders (rather than the condo associations) should be responsible for related unit fees for common areas and other common expenses," Booker told the Journal.

Across the country, REO (real estate owned) departments of banks have sought out any way possible to slice their expenses at the settlement table. Sliding the condo association dues over to the buyer was one way to make that happen (usually buried in the fine print of the foreclosure sales contract addendum issued by the bank after the contract has been accepted). However, many buyers were unaware of the delinquent fees until right at settlement or once they received a pass due notice from the association once they took ownership.

This interesting approach on the part of localities to protect its condominium associations' bottom lines will be watched closely by condo associations throughout Florida – if not countrywide.

Published: February 2, 2009

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