Rising Foreclosures Endanger Condo Associations

If associations do not have enough to operate, the property will go to waste, and more owners will stop paying their association fees, as well as their monthly mortgage payments. Clearly that will only lead to more foreclosures and more depressed areas.

I have three long-term recommendations for all condo associations.

Super lien: Mount a strong political campaign to persuade your state legislature to enact what is known as a super lien. This means that should a lender foreclose on a condominium unit, it would be required to pay the association up to a specified number of months of back condominium fees.

In the District, for example, if a lender forecloses on a mortgage that was recorded on land records after March 7, 1991, and the foreclosed-upon owner was also delinquent in paying condominium fees, the lender is required to pay the association up to six months of these delinquent expenses.

Virginia and Maryland don't have super liens. A bill proposing one was introduced in the Maryland legislature this year, but lenders strongly -- and successfully -- opposed it.

The law has worked in the District. Lenders have not gone out of business, as opponents have been telling legislators would happen elsewhere. More important, if a potential buyer at a foreclosure sale sees that the association is solvent, this will encourage competition at those sales, which will benefit everyone, including the lenders.

In my opinion, the super lien should be enacted all over the country as soon as possible.

Escrow of three months of condominium fees: If you live in a cooperative, you may be obligated to put three months of fees in escrow. If you become delinquent, the cooperative has a cushion it can tap before taking legal action to collect or foreclose.

Condominium boards of directors should seriously consider this policy. Depending on your legal documents, the board may have the authority to do this on its own, or it may have to have the membership vote to amend the bylaws.

Either way, this will assist in keeping the financial ship afloat for at least a few more months.

Right to approve new owners: Associations should consider amending their documents to incorporate the right of the board of directors to approve potential owners. Such a right already exists with most cooperative complexes.

If you want to purchase a cooperative apartment, you usually must meet with the board or its admission committee. The members will determine whether you can be approved to join the cooperative. The board or committee will consider only two factors: Is the potential owner willing to comply and capable of complying with the rules and regulations of the association? Is the potential owner financially able to pay the monthly assessments?

Obviously, such a process is risky. A person who is rejected may claim discrimination based on issues such as race, religion or sexual preference. Nevertheless, because most boards or committees are conscientious, there have been very few such complaints over the years.

To my knowledge, although it is legal for a community association to adopt such a process, very few associations have done so. Perhaps it is time to consider changing.

If lenders will not screen their borrowers, why should a community association have to suffer by having new owners who will not be able to meet their financial obligations to the association?

I recognize that this is a drastic and controversial proposal. I certainly do not want to keep anyone from homeownership. But the alternative may be that potential owners ultimately hurt not only themselves but also the community in which they live.

Benny L. Kass is a Washington lawyer. For a free copy of the booklet "A Guide to Settlement on Your New Home," send a self-addressed, stamped envelope to Benny L. Kass, 1050 17th St. NW, Suite 1100, Washington, D.C. 20036. Readers may also send questions to him at that address or contact him through his Web site, http://www.kmklawyers.com.