Condo Terminators Completes Florida’s First Mass Short Sale

FOR IMMEDIATE RELEASE

Grant Stern, founder of Condo Terminators in Bay Harbor Islands, Florida is pleased to announce Florida’s first Optional Condo Termination proceedings.

Miami - Condo Terminators, a specialty consulting group of Morningside Mortgage Corporation, in Bay Harbor Islands, Florida, has completed the filing process for Florida’s first mass short-sale of a failed condominium conversion on June 9 at the Sunset Lake Villas Condominium in Margate, Florida. 

This project is expected to lead a wave of Condominium Terminations, resulting in mass short-sales of failed condominium conversions, reversion to apartment buildings, and the debut of a new legal instrument, the Plan of Termination.

Sunset Lake Villas is majority owned by Anthony Galeotafiore, Managing Member of AJG Realty LLC development group of Bethpage, New York. Sree Reddy, Esq., LLM, of the Miami law firm Roth, Reddy PA, drafted the Plan of Termination and represented the Developer at today’s proceedings. 

Condo Termination was “the only way out” said Galeotafiore, “after all of the units we sold fell into foreclosure, all of the unit owners moved away or rented units without paying HOA dues.  Nobody is financing condos, but apartment buildings are bankable”

Condo Terminators provided specialty business advice to the Developer and transactional advisory services to his council and accepts projects for these services throughout the state of Florida.

“Condo Termination transactions are the only way to resolve Florida’s real-estate slump and protect the rights of home-owners, banks and the value of our tax base,” says Condo Terminators President, Grant Stern, “The Condo Termination law is meant to cut through the tangle of lawsuits and provide fair resolution to the parties of interest, outside of court.”

For questions and further information, please visit www.condoterminators.com or contact Grant Stern directly at 305.219.0326 or info@condoterminators.com or Anthony Gaelotafiore, President of AJG Capital of Bethpage, NY at 516-933-3507 or agallo@ajgcapitalresources.com

South Florida Tax Base Absorbing 90% Drop in Condo Values

Condo Termination can remove the weakest sales from the condo market and restore value to our eroding tax base.  Failed condo conversions are seeing enormous drops in tax assessed values.  Today's Miami Herald article highlighting the property tax appraised value updates showed another mid-teens double digit percentage drop from the year prior for South Florida's market taxable assessments.  The new, larger homestead exemption passed when property values and taxes skyrocketed in the boom years is creating unintended consequences.   When combined with dirt cheap apartments in failed condos, these developments promise to create new problems and iniquities in the tax base if left unaddressed.

The Miami Herald reports that the Broward County tax base shrunk by 12.1% last year and Miami-Dade by 13.4%.  Some neighborhoods saw mild price increases or declines, while others dropped by up to 30%!  This shrinkage means that while values drop, millage rates will have to be raised to provide the same services as the prior year, services get cut or create some tough choices for local politicians.  Even worse, this could force tax bills to rise when homeowners were expecting tax relief in line with their new, lower property values.

Last week, CondoTerminators.com posted the Notice of Termination to the owners of a Margate, Fl. complex, which was tax assessed at $159,000 for 2009.  The owner of the majority of the units challenged the 2009 appraisal and had it dropped to $117,000 per unit, saving $298 per unit.  This week's released 2010 assessed values were for $15,500 per unit, an over 90% drop in valuation from one year to the next!  

Florida's Homestead Exemption provides strong protection for homeowners against their creditors, as well as a discount in the assessed value of the home for property tax determination.  In January 2008, it was sensible to extend tax exemptions to provide relief to new homebuyers whose value assessments were an order of magnitude higher than longtime owners who were capped at 3% annual increases with low purchase prices in the early 90s and prior.   

 The old inequalities where longtime homesteaders underpaid and new buyers overpaid will suddenly reverse, permanently if these failed condos are the basis for ongoing tax rates.  The $50,000 Homestead Tax exemption combined with the 3% cap on increases means that a $20,000 condo purchased today, and homesteaded will take approximately 36 years to return those units to the tax base! 

Non-Condo property owners are facing rising millage rates and tax bills.  Condo prices are depressed due to the complete lack of financing options.  Short of passing new legislation to force bankers to loan into condos, this will remain the norm for several years to come - and leave open a window of opportunity to permanently depress property tax bases.   Condo termination will remove these underpriced units from the market and return their taxable values to higher, commercial income values based on cash flows.

Condo Termination Benefits Everyone

The Florida condominium statute provides an orderly process to terminate failed condos and revert them into apartment buildings with single owners. Condo Termination has the potential to produce positive outcomes for local governments and the Florida Condo market as a whole. Local governments are facing eroding tax bases due to mass cascading failure of the Florida condo market. The market for condominiums in Florida is oversupplied with liquidation priced condo units. Removal of failing condos from the housing stock will ultimately speed the recovery process in the Florida condominium market. Communities face a wave of decaying multi-family housing projects and "investor hotel" condos without adequate cash reserves and looming deferred maintenance. Condo associations all over the state lacking insurance, reserves with high levels of negative equity should be removed through Condo Termination, soon.

Local governments, school boards rely on property taxes for their operating budgets and to pay debt service. The Florida Constitution requires that this local tax money is set aside for the exclusive use of counties. With the implosion of thousands of condominium unit values, local tax bases are shrinking faster than budget predictions. When a few units inside the project sell at liquidation prices, and financing is frozen, local tax assessors have little choice but to write down values for the entire project. The net effect is raising property tax millage rates across the board. Single family homeowners with lower absolute value depreciation will feel the squeeze, while condo investors get the tax break from lower assessments. County governments will still be forced to cut back on services due tax base erosion, while homeowners will feel the squeeze of higher proportional taxation on their depreciated homes. Condo Termination will allow multi-family housing to be assessed at the leased income value, which is higher than market value where condo prices have crashed.

There's no mechanism to transfer distressed units to new end users without abundant financing. Agency and Government lending authorities place financing restrictions on projects that are largely investor held. Financing for fractured condos still poses tremendous challenges for developers with inventory and investors alike. Investors are weary of lending into or buying into condos due to the potential for sharply rising HOA dues or potential Special Assessments. Condo bulk buyers face the potential of developer's liability buying as few as 7 units. Condo Termination will reduce inventory quickly without requiring thousands of loan workouts and new loans in a tight credit market.

Local economies benefit by the maintenance and repair cycles in multi-family housing. The Florida condo market has a vast supply of Class B and C condominium units where rentals once existed. Healthy condo associations set aside hundreds of thousands of dollars over the course of years for the purpose of replacing roofs, aging plumbing, and improving electrical and/or fire systems. Like apartment buildings, condos require regular maintenance and periodic replacement of major components. Many projects near the end of their economically useful lives were sold to condominium converters and sold to end users with a few engineering reports, limited reserves and abundant financing. Lacking sufficient operating funds, these condos have limited or depleted reserves. Deferring maintenance will further reinforce the negative cycle condos are experiencing. Condo Termination will invite value seeking investors to purchase failed condos in need of repair, creating jobs and helping local economies.

Many new communities were launched with unsound footing and inadequate reserves during the recent real estate boom. Condo Termination will reverse eroding tax bases in the Florida condo market by removing liquidation priced units. It will reduce inventory quickly, without thousands of bank transactions when negative equity is drowning communities. The recovery process will accelerate with lower inventories and establishing criteria for communities that are failed. Apartment house maintenance will be performed by value seeking investors after Condo Termination, which will stimulate local economies and maintain high quality of housing stock. Ultimately, I believe that up to 15% of the post 2003 condominiums developed statewide in Florida could be legitimate candidates for Condo Termination in the course of the next 5 years.

Why Condominium Termination?

Condo termination has the potential to mitigate the damages caused by the condo market collapse and to distribute benefits to the distressed owners, lenders with impaired loans, local markets in general and entire communities at large.   There are four main players are suffering during this downturn: Unit Owners, Banks, Markets and Communities.   This article will seek to address specifically the difficulties faced by unit owners and mortgage holders.   Ultimately, condo market trouble affects all residents of a given area because a condo project is integrated into surrounding communities, even if the front door is gated.  

 The unit owner in a broken condo can be terribly burdened supporting a failing project, and the time, expense and headache of a short-sale may prevent orderly exit from their properties.  Most cannot afford the time off work, or attorney's fee to conduct a short sale.  Most are unaware of the option to give Deed in Lieu of foreclosure.   Condo Termination produces a mass short sale.  It doesn't require any individual to spend thousands of dollars on representation which will pit the individual owner's needs vs. the association's well being. 

  Most Unit Owners have limited real estate experience and are simply looking for a home as shelter and long term investment.  Few Unit Owners have experience as a licensed Community Association Manager or Condo Attorney which is needed to perform distressed servicing.   Many associations are falling out of compliance with State accounting requirements.  Even worse, many more associations are dropping insurance coverage, putting at risk the property improvements, compensation in the event of the worst and putting the Boards of Directors at risk for liability in the event of a catastrophe.  Condo Termination has mechanisms to transfer decision making authority into the hands of full time real estate professionals who act according to a pre-determined plan and stabilize the property improvements while winding down the condo's affairs. 

Just this past week, I spoke with a condo owner who wiped out her savings trying to support a terribly failed condo project with mass delinquency.   Her story to me was that her 1000 sq. ft. apartment's monthly maintenance assessments skyrocketed from $800 a month (a high figure for a non-luxury property) all the way up to over $2000 monthly!  She says that currently, the project is still charging over $1300 monthly and that the unit owners are close to 100% underwater on a valuation basis.  However, she and her peers have no clue of a way out of their situation . . . Condo termination provides an alternative to bankruptcy courts for failing projects where creditors may get a terrible haircut, but ultimately, shareholders will be stuck paying attorney's fees, trustee's fees, and as much as the property can generate to repay the other stakeholders, while lasting for many years. 

I also encountered a Condo Association President this week, who presides over a failing "investor hotel" condominium over 100 miles from his home address.  An "investor hotel" is a mortgage industry term for a condominium which is primarily consistent of individual landlords, with an attendant negative connotation.   This President assured me that dropping insurance for casualty was a necessity due to the terrible expense.  

I advised this President that it would be possible he could be held personally liable if there's a major casualty and that he would be wise to issue an emergency assessment of the membership to immediately resume coverage.   The President actually said that "the Board wasn't interested" in this type of action because "nobody would pay anyhow"!!  Condo Termination can reduce or eliminate poor decision-making by interested parties; to protect first, the rights of the inhabitants, and preserve the property improvements' value.

Lenders hold a tremendous amount of loans which are under water just waiting for the expense and loss of the foreclosure to REO sale process.   A typical foreclosure can cost the bank up to 25% of the collateral property's market value between attorney's costs, filing fees, lost revenue, sales commissions, taxes, back assessments and carry costs in inventory.   Lenders are too short on staff to process the multiple short sales, modifications, foreclosures, deed returns and other distressed loan resolutions.  

Loan workouts also require expensive lender reports on value, title searches and staff time.   The short sale process, where a bank cuts its losses early, is difficult for banks to execute case by case, as they are attempting to get the best price, while eliminate Non-Arm's Length sales to relations whereby the borrower benefits from the debt relief.   Condo Termination provides an Arm's Length method to sell condominium property, while lowering the administrative costs and satisfying risk management requirements.  Additionally, lien holders can liquidate holdings knowing that they will never have to pay carrying costs or posses the units - unlike individual workouts which may simply time shift the inevitable.  

    The next article in this series will address the benefits of Condo Termination to housing markets and how that translates into community support.   There are myriad benefits to Condo Termination, which, if realized, will create a positive feedback loop and arrest the erosion of communities with high concentrations of single family homes in multifamily housing projects.

FLORIDA CONDOS IN 'DOWNWARD SPIRAL' AS BANKS IGNORE LOSSES

As published in Condo Vultures on October 21st, 2009

Our condominium housing stock in Florida is stuck in quicksand.

While the sinking feeling is lightening up, most of the market is stuck at the bottom of the bust cycle where units are difficult to sell or finance and associations are struggling to afford basic services and there's no end in sight.

The main reason why condos are stuck in downward spirals is lien-holder and bank resistance to realizing losses. The micro-workout policies promoted by banks will prolong the pain indefinitely at current rates of progress, which may have been acceptable 20 years ago, but now threaten to sink any recovery's long-term prospects.


The lack of mortgage money is intensifying the pain by wrecking valuations across the board. Furthermore, these types of events create recognized paradoxes. Ultimately, removing some of the current condominiums - the uninsured, poorly managed, or flat out falling-apart projects - must be effected to restore equilibrium to the greater market as a whole.

Banks are attempting to spread their losses over many years rather than realizing them immediately, which is only causing broader losses as the market flags and more loans in neighboring associations slide away as foreclosures slowly sap the value from entire communities.

Banks want to avoid paying monthly maintenance and reserves - as well as the state's new mandate for condo contents insurance - landlord's insurance, management fees, repairs, etc. Many lenders are negotiating each loan individually based on borrower's income and solely looking to modify the terms rather than take write downs on principal balances - which is just another creative way to kick the can down the road and avoid realizing losses that are inevitable.

Without new mortgage money available, condominiums are dropping to all cash pricing throughout Florida. Condo valuations have been destroyed in the far more prevalent garden style apartments well beyond the depreciation seen in new construction high rise buildings. The current method of banks dealing with the issues is a recipe for endless distress. For many projects this could mean a decade of distress and low prices while lenders work things out in court, one unit at a time, project by project, until 100% of garden style apartments statewide have been turned over.

The condo law that "protects" banks from paying maintenance greater than 6 months condo dues or 1% of the loan amount is now providing a Perverse Incentive to delay foreclosures and losses. In essence, we are seeing play out a known phenomina - The Tragedy of the Commons - which is brought about by the management of a shared resources by a group of individuals all acting in rational self-interest. As individuals gain use from the commons, it is gradually destroyed for all until nothing remains. In many ways, it is a fractal microcosm of our current financial dilemmas.

A real recovery in the Florida market will require condominium stake holders (primarily lien-holding banks at this point) to recognize the destructive result of their self-interested actions and agree to collective solutions within individual projects. Florida's condominium law provides for methods to wind down condominium associations and satisfy stakeholders through the Condominium Termination process.

The market recovery will accelerate by providing benefits to all parties. For local governments there will be improvements to local tax bases and unjamming of our courthouses. For residents, better housing stock available for renters and a way out for thousands of homeowners who are paying loans that amount to debt slavery and cannot afford legal representation or have no hope of reducing balances without short payoff. For lenders, realizing savings through quicker, cheaper - most importantly - non-judicial resolutions which don't require direct investment for repairs or interim expenses or payment of ongoing assessments prior to sale of mortgaged property.

Why are Condos stuck in the mud?

Yes, I said it, our condominium housing stock in Florida is stuck in quicksand! While the sinking feeling is lightening up, most of the market is stuck at the bottom of the bust cycle where units are difficult to sell or finance and associations are struggling to afford basic services and there's no end in sight. The main reason why condos are stuck in downward spirals is lien-holder and bank resistance to realizing losses. The micro-workout policies promoted by banks will prolong the pain indefinitely at current rates of progress, which may have been acceptable 20 years ago, but now threaten to sink any recovery's long term prospects. The lack of mortgage money is intensifying the pain by wrecking valuations across the board. Furthermore, these types of events create recognized paradoxes. Ultimately, removing some of the current condominiums - the uninsured, poorly managed, or flat out falling apart projects - must be effected to restore equilibrium to the greater market as a whole.

Banks are attempting to spread their losses over many years rather than realizing them immediately, which is only causing broader losses as the market flags and more loans in neighboring associations slide away as foreclosures slowly sap the value from entire communities. Banks want to avoid paying monthly maintenance and reserves - as well as the state's new mandate for condo contents insurance - landlord's insurance, management fees, repairs, etc. Many lenders are negotiating each loan individually based on borrower's income and solely looking to modify the terms rather than take write downs on principal balances - which is just another creative way to kick the can down the road and avoid realizing losses that are inevitable.

Without new mortgage money available, condominiums are dropping to all cash pricing throughout Florida. Condo valuations have been destroyed in the far more prevalent garden style apartments well beyond the depreciation seen in new construction high rise buildings. The current method of banks dealing with the issues is a recipe for endless distress. For many projects this could mean a decade of distress and low prices while lenders work things out in court, one unit at a time, project by project, until 100% of garden style apartments statewide have been turned over.

The condo law that "protects" banks from paying maintenance greater than 6 months condo dues or 1% of the loan amount is now providing a Perverse Incentive to delay foreclosures and losses. In essence, we are seeing play out a known phenomina - The Tragedy of the Commons - which is brought about by the management of a shared resources by a group of individuals all acting in rational self-interest. As individuals gain use from the commons, it is gradually destroyed for all until nothing remains. In many ways, it is a fractal microcosm of our current financial dilemmas.

A real recovery in the Florida market will require condominium stake holders (primarily lien-holding banks at this point) to recognize the destructive result of their self-interested actions and agree to collective solutions within individual projects. Florida's condominium law provides for methods to wind down condominium associations and satisfy stakeholders through the Condominium Termination process.

My company - The Condo Terminators - intends to evoke a culling of the herd. The market recovery will accelerate by providing benefits to all parties. For local governments there will be improvements to local tax bases and unjamming of our courthouses. For residents, better housing stock available for renters and a way out for thousands of homeowners who are paying loans that amount to debt slavery and cannot afford legal representation or have no hope of reducing balances without short payoff. For lenders, realizing savings through quicker, cheaper - most importantly - non-judicial resolutions which don't require direct investment for repairs or interim expenses or payment of ongoing assessments prior to sale of mortgaged property.