Condo Associations Advised to Avoid ‘Vengeance Foreclosures’

Tampa Bay Business Journal - February 18, 2011

by Mark Holan, Staff Writer

TAMPA — Condominium associations are facing financial hardships as too many owners fall too many months delinquent in their assessments.

Responsible owners often get stuck paying for the deadbeats, or associations neglect routine upkeep, further damaging already depressed property values.

In an effort to collect the money, some associations pursue what Frank Silcox calls “vengeance foreclosures.”

Silcox is the founder and chief executive officer of LM Funding in Tampa, which advances cash to associations in exchange for keeping late fees and 18 percent interest on delinquent assessments.

The business currently holds $32 million in receivables, or triple the amount from last year, Silcox said.

Nearly 70 percent of condo owners with past-due assessments are investors who don’t live at the property, said attorney Bruce Rodgers of Business Law Group in Tampa, which handles collections for LM Funding.

But filing foreclosure against unit owners in arrears on their assessments typically results in more heartburn and expenses for the association, Silcox said. The assessments remain unpaid as the association takes on attorney fees in a foreclosure process that can last a year or longer.

Once the association takes title on the foreclosed unit, it is responsible for taxes, maintenance and marking the property to a new owner. The association stands a better chance of recouping more of the back-owed assessments when the bank forecloses or modifies the loan, Silcox said.

Under state law, banks can settle with associations for as little as 1 percent of the mortgage or 12 months back assessments, whichever is less. But that’s only if the bank has done everything right in issuing the mortgage and foreclosure.

“We are challenging the banks,” Silcox said. “A lot of these mortgages were done so quickly that a lot of mistakes were made, and we can find them and hold them accountable.”

LM Funding averages better than 92 percent recovery of all owed assessments, Silcox said. Payments come from owners in the early months of delinquency, then shift to banks after about seven months.

Motivated to get a return

There’s certainly motivation to succeed. The money LM Funding advances to the associations isn’t refundable if it fails to collect the outstanding debt.

LM Funding currently represents 145 of some 29,000 condo associations in Florida, Silcox said. “There’s a huge opportunity all over the state.”

The Quarter at Ybor began selling delinquent accounts to LM Funding three years ago, said Joseph Saine, an export manager and president of the condo association.

“Our receivables were close to 40 percent of our operating budget,” Saine said. “Now it is around 18 percent and getting smaller.”

Associations pick which accounts they want to sell. Silcox said his contracts vary from a handful to 100 or more, depending on the size of the condo community.

The number of delinquent owners has skyrocketed as condo values plunged in the past few years and owners don’t have any equity to protect, Silcox said.

“Most people want to meet their obligations,” he said. “But there comes a point where they are so upside down that they are making a business decision about cutting their losses.”