Do you know what a rider in a PUD (Planned Unit Development) or a condominium contract is? Riders are a part of the ownership document when a unit is purchased in a community with a condominium or homeowner association.
Riders give community associations the right to notify a bank when an owner has stopped paying dues, and subsequently gives the bank holding the unit mortgage the opportunity to pay the assessment, adding that cost to an existing unit loan. (This isn’t to say that the bank must pay but its fair warning that notice for unpaid fees allow banks to step in and do the appropriate thing). A typical rider language:
“If Borrower does not pay condominium dues and assessments when due, then Lender may pay them. Any amounts disbursed by Lender under this paragraph F shall become additional debt of Borrower secured by the Security Instrument. Unless Borrower and Lender agree to other terms of payment, these amounts shall bear interest from the date of disbursement at the Note rate and shall be payable, with interest, upon notice from Lender to Borrower requesting payment.”
Condominium or homeowner association members should think of riders in the same sense of premiums received from an insurance company. Should they fail to pay the premium, the policy would be canceled. B a n k s holding foreclosure papers will always pony up unit payments due an association to protect their collateral. If no payment is forthcoming, the community association can notify the bank as the unit’s lender to provide a chance to pay up, just as if they were the agency collecting the insurance premium. However, the procedure to notify banks in this way is rarely used.
The Florida Legislature could very easily use riders as a starting point to improve timely collections of units in default. Instead of trying to strip the associations from their rights to collect late fees, late interest, attorney and collection costs, the Legislature could simply utilize what statutes exist to require banks to cover the costs of maintaining the unit and protect their collateral. If the bank wants to postpone foreclosure, that’s their God-given right. Associations then would never really have to engage a collection company or attorney to recover their money, and banks would not have to try to strip associations from their rights to collect such costs. Backed by lots of powerful friends in Tallahassee, many banks have gotten away with nonpayments that the association needs to maintain their fiscal budgets.
While I don’t know what’s next in the politics of this issue, associations can and should move forward to take title to foreclosed units because the law is clear in that regard.
Any association can still recover delinquent costs when banks seek formal property ownership. Associations can also intervene by taking title to monetize unit income through rental programs. They can notify banks of their intent to take action, just as PUD and condo riders say they can.
Riders are there for a purpose. So why not use them?
Mitch Drimmer is a licensed CAM and is the Vice President of Association Financial Services, an accredited collection agency, specialty finance, business process outsourcing, specializing in community associations. For more information, visit <www.associationfinancial.com> or tel. 305- 677-0022, ext 804.