Condo expert reveals state of US market

Gary Poliakoff is the founding principal of Becker & Poliakoff, one of Florida's largest and oldest condo association law firms. The company represents 4,500 associations from 13 offices statewide.

Poliakoff has recently written a book, "New Neighborhoods: The Consumer's Guide to Condominium, Co-op and HOA Living", in the wake of the condo industry suffering such a rise in delinquent fees that many associations have been forced to scale back on services, utilities and even insurance coverage. Some have gone as far as to file for bankruptcy.

In a recent interview with the Miami Herald, Poliakoff gave an in-depth snapshot of the state of the condo hotel sector in Florida.

Q: What is the biggest single issue facing condo associations. What is going on around the state? Which markets are faring the worst?
A: The big issue is the financial crisis that has been brought about by individual owners who are upside down or underwater on mortgages, banks that have foreclosed but are not taking title to units, forcing the small number of unit owners who are meeting their assessments to have to pick up shortfalls that are resulting from nonpayment by other unit owners and nonpayment by lenders.

Q: How bad is this crisis?
A: I've been in this business for 37 years and never thought an association could even file for bankruptcy. In the last few months, we've seen six bankruptcies -- where associations are seeking to reorganize in order to stem the tide of defaults and to find some solutions to being able to defer payments of obligations of essential services. We see the problem statewide, but we don't see it universally with every condo in the state. Go to traditional senior retirement communities and you will find the problems in these communities are epidemic.

Q: What has the banks' role been in exacerbating this crisis? Are banks really deliberately delaying foreclosures in condos to avoid maintenance fees?
A: That is absolutely true. There is no question about that, but then the banks are looking out for their own interests. They understand that if they take title to a unit, they immediately not only have a limited statutory liability for past due assessments, but at a time like this when hurricanes are churning, they would be liable for any resulting damages not covered by insurance - if they are holding title at the time a casualty takes place.
So what the lenders are trying to do to avoid judgements is work out a short sale, which means they will try to find a buyer before they take title. They want to take title to pay off their six months or one percent of the mortgage [or whichever is less as required by statute] and transfer the unit to someone else, so they can escape the larger potential liabilities associated with being a unit owner at a time there was a major loss.

Q: How has the state responded? And has the response been adequate?
A: They haven't. The state hasn't responded. And it's evident to me why they haven't responded. The banking lobby is a very powerful lobby. There was a bill that was sitting in the legislature this past year, S.B. 880, that only needed to be voted on and that had some excellent provisions in it that would have forced the lenders to pay a larger sum of the assessment outstanding. There are some who are looking into using the bankruptcy courts as a means of forcing banks to pay to maintain the collateral. What's happening here is the collateral for the money that is owed are these condo units and the value of those units are dependent on the condition they are in at the time of foreclosure. But the banks are not contributing to the maintenance of those units. So the other unit owners generally are forced to pay the shortfalls, basically to support the collateral of banks that are not paying their assessments.
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