By Lauren Hansen
February 12, 2009
 
Once-hot condo market doused by flood of foreclosures

Brian Murphy is the go-to guy for apartment issues. Got a leaky
pipe, squeaky door or a rodent ruining your day? Murphy’s your man.

Every day he faces a barrage of complaints from fellow residents.
He has grown weary of the constant phone calls and knocks on the door.
“Sometimes it is a little too much,” he said.

Murphy is not the manager of an apartment building, nor is he a
landlord. He is simply a condo owner doing whatever he can to keep his
10-unit Rogers Park building afloat.

In the past two years, Murphy’s 46-year-old building has suffered
two unit foreclosures. This means, among other things, a loss of
assessment fees that help pay to maintain the building. The building
has lost almost $10,000 in assessment fees so far, not to mention an
additional $9,000 lost in a heating-bill fiasco involving one of the
foreclosed owners.

To keep money flowing, Murphy brought renters into the newly vacant
units. He could offer only month-to-month leases, however, because, he
said, the bank can take possession of the foreclosed units at any time.
That move would again cut off the flow of money.

With only 10 units, the building’s small size complicates matters
because fewer owners are availabe to cover costs. With expensive
maintenance repairs coming up and the need to rehab foreclosed
apartments for new renters, Murphy said they were just breaking even.

“We are in such a fragile state,” he said. “Now, having two foreclosures – it’s devastating.”

Unfortunately, Murphy’s experience is not unique.

Filings for condo foreclosures throughout Chicago more than doubled
in the past two years,according to numbers released by the Woodstock
Institute, a company that tracks community development. They rose from
1,670 in 2007 to 3,991 in 2008.

The increases in North Side neighborhoods like Murphy’s are
staggering: Lincoln Square had a 400 percent increase while Rogers Park
and West Ridge had a more than 250 percent increase in foreclosured
condo units.

“We were stunned,” said Geoff Smith, vice president of the
Woodstock Institute “We wanted to make sure that wasn’t some sort of
data mistake, but it was confirmed that those numbers seemed in line
with what was going on.”

The reason? It’s complicated.

A smaller percentage of the foreclosure spike is the result of
individual condo owners defaulting on mortgages, said Smith, due to
multiple factors including the current economic meltdown.
Traditionally, many condo buildings in Chicago have prohibited renters,
but at this point, Smith said, they may prefer renters to vacant units.

However, individual defaults can’t account for the huge spike in
condo foreclosures. “The jump is tied to development going under,”
according to Smith. Many developers tried to cash in at the end of the
housing boom by quickly building condo buildings. Now they have too
much product for too little demand.

To prevent a foreclosure, a developer will try to find anyone to
occupy vacant units. “They need to get revenue streaming in,” Smith
said. “They’ll rent units to anyone will to live in them.”

The condo problem is further complicated by the turn over, the
point at which the developer turns the building over to the newly
established condo association. This occurs either after 75 percent of
the units are sold or three years after development begins.

At the turn over, the developer takes over any remaining vacant
units. He pays assessment fees like any other owner. Developer-as-owner
is yet another cause of the recent foreclosure spike, said Sheli
Lulkin, president of the Association of Sheridan Condo/Co-Op Owners.

“If the developer doesn’t pay the monthly assessment fees, he can
be evicted by the association,” she said. “The association goes after
the developer, and a lot of them skip town.”

Lulkin, who has been involved with condo associations for more than
40 years, said in neighborhoods like Lincoln Square, too many luxury
condos were built by developers with too little ready cash. In
neighborhoods like Rogers Park, she said, longer-established condo
buildings included owners who were financially unstable.

“You had programs to bring people in and help people buy condos who normally couldn’t afford them,” Lulkin said.

Mix one part overheated condo boom, one part get-rich-quick
developers and one part good, old-fashioned predatory lending, and
you’ve got yourself a condo foreclosure crisis that is likely to get
worse before it gets better.

So what’s a condo-owner to do?

“Unit owners need to get training as landlords,” said Brian White,
executive director of the Lakeside Community Development Corporation. A
cmprehensive housing organization, Lakeside is funded by the city to
provide condo-specific services, such as landlord and management
training.

More condo units will be turned into rentals to prevent
foreclosure, said White. Whether they like it or not, owners who are
left in the building will find themselves operating as landlords of
vacant units.

“Owners need to get training as landlords and become good
landlords,” he said. “The end result is to create a whole new stock of
rental housing. There is a huge inventory going into foreclosure.

"For at least another year or two condos will make up a
disproportionate share of the foreclosures. There are probably a lot of
people out there who are struggling. The associations need to be more
proactive.”

Condo owners didn’t necessarily sign up for this kind of
responsibility, White acknowledged. “The tendency is to not do anything
they don’t have to do."

If Murphy is any proof, condo owners are ready to step up and take
control of their buildings in order to save their homes. Murphy
attended one of the Lakeside CDC training programs and was relieved to
find he wasn’t alone. But he was discomforted by the number of people
dealing with the same issue.

“It’s a real mess for condos,” he said. “I’ve been hearing about other [condo foreclosures], and its quite frightening.”

The increases in North Side neighborhoods like Murphy’s are
staggering: Lincoln Square had a 400 percent increase while Rogers Park
and West Ridge had a more than 250 percent increase in foreclosure
filings.

“We were stunned,” said Geoff Smith, vice president of the
Woodstock Institute “We wanted to make sure that wasn’t some sort of
data mistake, but it was confirmed that those numbers seemed in line
with what was going on.”

The reason? It’s complicated.

A smaller percentage of the foreclosure spike is due to individual
condo owners defaulting on mortgages, said Smith, due to multiple
factors including the current economic meltdown. Traditionally, many
condo buildings in Chicago have prohibited renters, but at this point,
Smith said, they may prefer renters to vacant units.

However, individual defaults can’t account for the huge spike in
condo foreclosures. “The jump is tied to development going under,”
according to Smith. Many developers tried to cash in at the end of the
housing boom by quickly building condo buildings. Now they have too
much product for too little demand.

To prevent a foreclosure, a developer will try to find anyone to
occupy vacant units. “They need to get revenue streaming in,” Smith
said. “They’ll rent units to anyone will to live in them.”

The condo problem is further complicated by the turn over, the
point at which the developer turns the building over to the newly
established condo association. This occurs either after 75 percent of
the units are sold or three years after development begins.

At the turn over, the developer becomes the owner of any remaining
vacant units. He pays assessment fees like any other owner.
Developer-as-owner is yet another cause of the recent foreclosure
spike, said Sheli Lulkin, president of the Association of Sheridan
Condo/Co-Op Owners.

“If the developer doesn’t pay the monthly assessment fees, he can
be evicted by the association,” she said. “The association goes after
the developer, and a lot of them skip town.”

Lulkin, who has been involved with condo associations for more than
40 years, said in neighborhoods like Lincoln Square, too many luxury
condos were being built by developers with too little ready cash. In
neighborhoods like Rogers Park, she said, longer-established condo
buildings included owners who were financially unstable.

“You had programs to bring people in and help people buy condos who normally couldn’t afford them,” Lulkin said.

Mix one part overheated condo boom, one part get-rich-quick
developers and one part good, old-fashioned predatory lending and
you’ve got yourself a condo foreclosure crisis that is likely to get
worse before it gets better.

So what’s a condo-owner to do?

“Unit owners need to get training as landlords,” said Brian White,
executive director of the Lakeside Community Development Corporation. A
cmprehensive housing organization, Lakeside is funded by the city to
provide condo-specific services, such as landlord and management
training.

More condo units will be turned into rentals to prevent
foreclosure, said White. Whether they like it or not, owners who are
left in the building will find themselves operating as landlords of
vacant units.

“Owners need to get training as landlords and become good
landlords,” he said. “The end result is to create a whole new stock of
rental housing. There is a huge inventory going into foreclosure.

"For at least another year or two condos will make up a
disproportionate share of the foreclosures. There are probably a lot of
people out there who are struggling. The associations need to be more
proactive.”

Condo owners didn’t necessarily sign up for this kind of
responsibility, White acknowledged. “The tendency is to not do anything
they don’t have to do."

If Murphy is any proof, condo owners are ready to step up and take
control of their building in order to save their homes. Murphy attended
one of the Lakeside CDC training programs and was relieved to find he
wasn’t alone. But he was discomforted by the number of people dealing
with the same issue.

“It’s a real mess for condos,” he said. “I’ve been hearing about other [condo foreclosures], and its quite frightening.”

 
 
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