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In cities where investors were diving into condos on hopes of flipping it for a quick profit, there’s a new trend: When said buyers realize they made a losing bet and they either can’t (beyond their “option ARM” loan just reset much higher than they expected) or choose not to keep paying the mortgage (because values have plunged and they’re now underwater on their loan), these owners also quit paying their condo association fees. Which means there are a growing number of condos where the owners’ association is coming up short on collecting the dues they need to maintain the property (i.e., keep the elevators functioning, fix the furnace, shovel the snow off the sidewalk, etc.). This story in the Washington Post documents the problem that deadbeat condo owners are creating there.
So what recourse do the other condo owners have to extract unpaid dues from their fellow property owner? In the District of Columbia, the association is legally able to step in and collect up to six months of unpaid dues from the owner of any property that falls into foreclosure —ahead of the banks. But in other jurisdictions, condo groups are generally out of luck, as pointed out by housing columnist Bennie Kass, in this separate story in the Washington Post.
In neighboring Virginia and Maryland, condo associations saw their efforts to get similar laws beat back by the mortgage industry, which clearly doesn’t want any other groups getting first claim on the proceeds from a foreclosure sale. Another sign of the times.
P.S. As long-time readers of this blog may remember, I lived in Washington for nine years (from 1989 to 1998) and owned a starter home in Mount Vernon for most of that period. Our house flat-lined during those nine years—when we moved to Atlanta, we sold our house for about what we paid for it. In next seven years, that same house soared in value—and was up probably 175% (and maybe more) from what we sold it for (a development that makes my wife sick).
We revisit Washington at least once every year (to let our school-age kids visit their old friends) and on a previous visit this time last year, I was stunned not only at the values, but also the number of homes that were on the market. At the nearest crossroads to our old home, there were probably 30 “for sale” signs hammered into the ground. Our friends said a lot of owners knew the gig was up, and that older owners (empty nesters) were putting their house up for sale just to see what it would fetch. If they could find a sucker, they’d sell and move to Florida. If not, they’d ride it out.
We just returned from another visit back (our kids were on spring break). My take on the “close in” segment of the Washington market? It’s the calm before the storm, and here’s why…
More than anything, I was struck by the dearth of "for sale" signs this year in our old neighorhood. Nada. Maybe one, at most. But talking to the old friends we were staying with, it seems everyone is just hunkering down, trying to ride out the storm. Our friend pointed to one home down the street that was foreclosed on a little less than a year ago, and still sits empty. No takers. And the house on the corner was built by a would-be developer, presumably looking to build it on spec and flip it for an easy profit. But he couldn't sell it, so he's now moved his family into it. This doesn't sound like a healthy market...
While we were in town, the Post also ran this piece by business columnist Steve Pearlstein. Up to now, Washington has benefited from both a vibrant tech sector and resilient government sector that has caused the population to boom (worsening traffic have also prompted home buyers to bid up the value of closer-in properties, just to avoid the traffic snarl.) But Pearlstein notes that there's a growing disconnect between the needs of employers and the skill set of the mid-level skilled workers--and that some employers are certain to shift work to other cities where skilled workers are more plentiful. This article raised the question in my mind whether Washington can sustain the heady economic and income growth of recent years. If not, then those home prices are gonna come crashing down, down, down...
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.