Associations Left Empty-Handed After Foreclosure

This past weekend, the Cleveland Plain Dealer ran a front page story on condominium sales in Ohio. Stagnant condo sales often have a negative impact on the association and the surrounding condominium community. In response, Ohio's community association boards have been working tirelessly to preserve their community's property values and community spirit. Reporting on these actions, the paper published another story about how Ohio's condominium associations are asking legislatures for help by joining 13 other states and enacting a condominium "super lien." According to the story by Michelle Jarboe:

CLEVELAND, Ohio -- Condo associations in Ohio want legislators to put them first in line for money when homes in their buildings are foreclosed upon.

The recession, the housing slump and job losses have meant more foreclosures and delinquent monthly fees for condos. Owners pay these fees - ranging from a few hundred dollars to more than $1,000 a month - to cover landscaping, building maintenance, utilities and other services. When owners stop paying, associations with tight budgets have two options: cut services or raise fees for all residents.

This year, the boards that represent condo communities have asked the Ohio General Assembly for relief in the form of "superliens."

Traditionally, the bank that provides the mortgage on a home has the primary lien, giving it first priority on money from a sale of the property during the foreclosure process. But when a home is sold after a foreclosure, the sale price may not cover the mortgage, especially after several years of declining home prices. In those cases, the bank recoups only part of its investment. And other lienholders, including the condo association, are left empty-handed.

Superlien laws generally require that the condo association be paid up to six months of delinquent fees before the primary lender and other creditors receive money. Such laws have been approved in at least 13 states and the District of Columbia. Ohio condo associations hope lawmakers here will take up the issue this fall.

In Northeast Ohio, most condo associations are fairly healthy, said David Kaman, a[n]... attorney who represents homeowners associations. But some associations, staggering under the weight of unpaid fees, left their swimming pools closed this summer, cut back on landscaping and started talking about payment plans with their utility companies and service providers.

"Right now, the condos in Ohio are keeping their head above water," Kaman said. "But if the economy continues to get worse, we could see that change. By enacting this legislation now, we will avoid condos' drowning."