I have an elderly neighbor in my condo building (age 70+). He can easily afford to pay off his mortgage. However he stopped paying his condo dues about a year and a half ago. I asked him why. His story:
“I am underwater on my mortgage by several hundred thousand dollars. Housing prices are unlikely to recover in my lifetime. I have plenty of money and will not need to borrow in my lifetime. I therefore don’t care if my credit rating gets trashed. Throwing money into an underwater mortgage is a waste and takes away from my estate. So, I went to the bank and made a deal with them. I stopped paying my mortgage and my condo fees. I continue to pay the taxes, the utilities, and continue to maintain the interior of the unit. The bank doesn’t have to write the loan down, pay the taxes, or maintain the property. My cash flow is substantially reduced.”
Notice he stopped paying the condo fees. Why? Condo association fees in our state are subordinate to taxes and the mortgage. While the condo association can put a lien on the property it cannot foreclose. Also, in a foreclosure, the condo association cannot collect more than 3 months back dues and the back dues will be paid by the new owner upon foreclosure, not the current owner. My neighbor doesn’t pay his association dues because there is nothing the association can do to legally compel him to do so unless the bank forecloses. Plus, the state law will not allow the association to cut off the water and cable TV the association pays for all units nor will it allow the association to prevent him from using the common areas and pool.
My neighbor enjoys a wonderful place to live at a tremendously reduced cost thanks to his neighbors who still pay their association fees and the shareholders of the bank. He will likely die in a few years at which time the bank will foreclose, getting nothing from his estate other than the keys to the property. The association will receive 3 months rent. His heirs will enjoy the money he did not have to spend on his mortgage and condo association payments nor will they have to use his assets to make good on the mortgage.
My neighbor was a successful small businessman who lived the American dream, building a business and selling it for several million dollars. He has no moral qualms about what he is doing. In his mind he negotiated a good deal with the bank and is doing nothing illegal. He feels no guilt about not paying for the upkeep of the property or use of the common areas. In his mind, as long as he is complying with the law he has no moral obligation to the neighbors who are subsidizing his lifestyle.
America is dying due to the entitlement mentality. Unfortunately it isn’t only the welfare queens, the union members and the government workers who have this sense of entitlement. The moral compass of the country is gone when small businessmen are as intent on gaming the system as the non-producers.
I have a (now ex) friend who stopped paying his mortgage 4 years ago. He's still living in the house (still calls it HIS) and pays only the utility bills. Doesn't even pay the taxes on the house.
He works a full time job, drives nicer vehicles than I do, takes nice vacations several times a year, has a large screen TV in every damn' room in his house, the house is twice the size of mine.
With friends like that .......
That is a really disturbing story you shared, thank you for writing it out.
I was dealing with a condo that had 120 units of which 25 to 30 were not paying dues on any given month. Was a dire situation which left the HOA and developer in a lurch for nearly 2 years. Only now have the backlog of pre-foreclosures and foreclosures been transacted to new owners and as of last month only 9 units were not paying HOA dues.
As per the original article, Professor Schiller sees the possibility for another 25% drop in home prices, which means starting a new Federal program to roll over under water mortgages at this point would just dig a deeper hole for those who took up the new roll over mortgages. At some point several years from now, where the market has found a real bottom after interest rates return to non-ZIRP non-QE levels would a roll over program even begin to make sense for the homeowners and the banks.