John Loomis for The New York Times

Peter Zalewski, a broker for Condo Vultures Realty in Miami, led an Italian investor,

Alessandro Comoglio, through a dimly lit hallway to an apartment for sale recently. The

lights are turned down to save on electricity costs, as owners forced out by foreclosure

have left fewer tenants to pay fees. May 15, 2008

Collateral Foreclosure Damage for Condo Owners

By CHRISTINE HAUGHNEY

Barbara Sanz has never missed a mortgage payment, but the plunge in

real estate is punishing condominium owners like her anyway.

Four years ago, she bought her first condo in a glassy new Miami tower

when the building was filling up. Now nearly one in six residents in the

43-story building is battling foreclosure and their contributions to the

building association are shrinking. Each of the remaining owners has

had to chip in an extra $1,000 assessment and $50 more a month for

cable and Internet. That is on top of Ms. Sanz’s $450 monthly

maintenance fee.

Even though she pays more, her building has broken washers and dryers

and unusable exercise equipment, and her hallway is spotted with mold.

“It’s not fair,” said Ms. Sanz, a 32-year-old event planner. “The first two

years, I enjoyed all of the benefits of living in a condo. I’m disappointed

now. I hate the way the building looks.”

When people buy condos, they expect their monthly fees will cover many

of the responsibilities that they would otherwise have as owners of

single-family homes, like cutting the grass and paying the water bills.

Now many find themselves nagging each other in the hallways to pay

their assessments and adding special fees while haggling over chores. In

Miami, Chicago and San Diego, condo owners are adjusting to the

economic woes, sometimes by mowing themselves and working shifts

for building security — all while lamenting their lost community.

“What motivated people to go into the condo market in a way that led to

overbuilding was the expectation that it would be easier than owning a

home on a maintenance basis,” said Sam Chandan, chief economist at

the real estate research firm Reis. “The downside is that your fate is tied

to 50 or 100 other people who may stop making their condo payments.”

Many of the numbers compiled on home sales specifically exclude

condos, which account for one out of eight homes in the nation, and that

missing data may be masking just how weak the housing market really

is. Sales of existing condo units were down 26 percent in March from a

year earlier, compared with an 18 percent decline for single-family

homes, according to the National Association of Realtors.

The pain in the condo market, mostly in urban areas, may not only be

deeper than in the rest of the housing market during this downturn but

more prolonged. Bargain hunters say they are reluctant to buy into a

building even when the upfront cost seems low because they might have

to pay unexpected fees as distressed neighbors default on their

mortgages or just stop paying the association fees that cover everything

from taxes to pool maintenance to air-conditioning repair.

Marcus & Millichap Real Estate Investment Services, which is based in

Encino, Calif., estimates that nearly 202,000 condo units will be added

this year to the pool of 574,000 added nationally in the last five years.

Next year will bring 94,166 more units onto the market.

“We have not even approached the bottom and will not approach the

bottom until 2009,” said Hessam Nadji, managing director of research

services at Marcus & Millichap.

The shabby condition of some condos means potential buyers insist on

especially steep discounts on foreclosed units. Alessandro Comoglio, a

34-year-old investor from Italy, recently visited six apartments in Ms.

Sanz’s Miami building with a real estate broker. Mr. Comoglio was

surprised to find worn-out hallway carpeting and orange foreclosure

stickers partly scratched off the doors in such a new building.

His willingness to spend stopped short of $200,000 for the condo units,

which once sold as high as $700,000, according to the broker, Peter

Zalewski. Mr. Comoglio also wants a written guarantee that he would

not have to pay more fees.

“Nobody knows if the worst is yet to come,” he said. “Nobody knows

how much prices will continue to drop.”

Rosa Rodriguez, a resident and property manager at Parkview Point

Condos in Miami Beach, says her former neighbors have left her with so

many problems that she would never buy a condo again. The 38

foreclosures in her 244-unit building and the unpaid dues nearly cost

the residents running water because the building could not pay its bills.

The building abruptly stopped repairing its ceiling lobby and left its

wiring and ducts exposed when the board ran out of money. She avoids

answering questions from visitors about ceiling repairs.

“We’re not going to tell them we don’t have any money,” she said.

“That’s embarrassing.”

Buildings with few units can suffer even if it just one owner falls into

trouble. Doris Wilson, who owns a one-bedroom apartment in a

building in the Bronzeville neighborhood of Chicago, struggled to get a

lender to pay $2,500 in association fees after it foreclosed on one of the

seven units in her building. The bank eventually paid the money, and

the association has since been able to paint its wrought-iron fence and

clean the sewer system.

John Loomis for The New York Times

Peter Zalewski, a Miami broker, led an Italian

investor, Alessandro Comoglio, through a condo

building with foreclosure trouble.

Still, Ms. Wilson worries that the expected sale of the foreclosed unit at

about $94,000 will hurt neighbors who paid or refinanced their units

for three times that price. In the short term, she dislikes asking her

neighbors to pay an extra assessment of nearly $220. She dreads going

to monthly condo board meetings, and she avoids some neighbors who

are struggling to pay the additional fees.

“It’s personal,” she said. “Here they are going through a hard time and

you have to ask them to pay.”

Marki Lemons, a Chicago real estate broker, says that investors are

hesitant to buy properties with many foreclosures because of the

possible problems. Some buildings with four to eight units have had so

many foreclosures that their condo associations have disbanded and

windows have been boarded up. In these cases, she does not even want

to represent sellers, because buyers cannot get financing and will have

to pay all cash. Sellers will be disappointed by those buyers’ offers.

“They’ll probably give 20 cents on the dollar,” she said.

So far, the Manhattan market has been largely spared, in part because of

foreign owners who never sought a quick profit. By the end of the year,

about 15,000 units will have been added during the five-year condo

boom in Manhattan, according to Miller Samuel, a real estate research

firm.

Jonathan Miller, the company’s chief executive, said that foreigners,

who have bought up to a third of these new condos, typically put in more

cash and plan to hold for some time.

“They’re in it for the long-term equity play,” he said. “They’re looking for

a 10-year hold.”

Those who fear a downturn remember that Manhattan co-op prices

suffered so much during the housing downturn of 1989 to 1993 that

buildings had a hard time luring buyers. This financial instability hurt

New Yorkers at all economic levels. Some recall neighbors handing over

their Fifth Avenue apartments for $1 because they could not afford the

maintenance fees.

Condo owners across the country are trying to ride out the slowdown.

Since 2004, when Mark Mills bought his two-bedroom apartment for

$622,000 in the 210-unit GasLamp City Square condo in downtown San

Diego, 10 of his neighbors have succumbed to foreclosure. The building

now has a $115,000 shortfall in its budget because residents failed to

pay their condo dues.

He resents neighbors who have rented units they cannot sell to 20-

somethings, who leave beer bottles in the lobby and hold late-night

parties. He is tired of the constant beeping of a smoke alarm in a vacant

unit, indicating a battery needs to be replaced. Still, Mr. Mills is staying

because he expects he could get only about $550,000 for his home.

“We couldn’t sell it for what we bought it for,” he said. “I’m in it for the

long haul.”

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