Condos Too Facing Foreclosure Now

January 21st, 2008

Foreclosures are happening all across United States, now even the luxury condominiums are falling prey to it. Arnold Kovelman, a senior account executive from New York received a jolt when the area sheriff came to his rented condo at The Club (Brickell Bay, Miami) and served a foreclosure notice for his landlord.

Kovelman’s rented condo was one among 80 that succumbed to foreclosure in 2007. The Club registered maximum foreclosures of luxury condominiums in the Miami-Dade and Broward counties with over $42 million in dues.

The financial section of Miami, located along the Brickell Avenue has three of the best five structures is now jokingly referred as “foreclosure district” by Condo Vultures’ president Peter Zalewski.

The area’s real estate market looks dismal with most towers remaining unoccupied- burdened with defaulted mortgages of hundred of millions of dollars. According to Condo Vultures, a brokerage and real estate organization in Bal Harbour, among the 20 buildings in Miami-Dade and Broward counties with highest foreclosed units, the defaults are over $271.8 million.

The percentage of units under foreclosure varied extensively for the 20 buildings ranked. In the large complexes with higher units facing foreclosure accounted for low percentage whereas in smaller complexes (e.g. 36-storey Vue at Brickell) lesser numbers under scanner represent high percentages.

The investors, says Zalewski comprised mainly the speculative class who had great expectations from Brickell considering its ambience, infrastructure and utility. Also responsible for these defaults were deceptive mortgages with overrated evaluations and fake buyers.

Broward has lower number of foreclosed units and loan defaults than Miami-Dade, but only because they have fewer luxury and new condos. But, condo converts such as Sailboat Pointe in Oakland Park have as high as 9 percent foreclosure rate. Infact these are cases where people have actually lost their homes and not a case of gamble gone wrong.

However, Zalewski believes that the scenario in Miami Dade was turning favorable for investors and become better for bargainers with the completion of 10,000 units under construction. He confirms that it is unfortunate for sellers who would be “scrambling for alternatives” as “foreclosure rates will be even higher with the new product.”

Usually if around 10 percent units in a building is for sale it is considered “healthy,” but higher percentages means serious consequences for that property.

Brickell Bay’s the Club had 128 units for sale last week, with 30 units for short sale (at discounted rate as they faced foreclosures or defaulting). An 818 square-foot unit sold for $430,000 in June 2006 was available for $220,000 last week.

The residents of buildings with heavy foreclosure not only face the inconvenience of empty units but some even face maintenance fee hikes by community associations with budget deficits and special reviews. Lisa Magill, an attorney with Becker and Poliakoff that represents community associations says that since more than 10 percent of residents fall behind payments, expenses become unaffordable and maintenance difficult.

As the condo association of the Club at Brickell defaulted on its payments, the cable and internet service were discontinued.

However, being optimist Alex Fornet, a Club resident for past two years says, “hopefully, when we get all these issues with the foreclosures we’ll prosper in the end and profit from our investments.”