What to do when a bank is a deadbeat?

Marketplace Staff Feb 26, 2010

What to do when a bank is a deadbeat?

Marketplace Staff Feb 26, 2010


TESS VIGELAND: The Obama administration is open to forcing banks to reduce the principle some homeowners owe on their mortgages. That was the word from a top Treasury official at a congressional hearing this week. No specifics on whether that might also apply to condo owners in danger of foreclosure. Condos pose a unique problem: If your neighbors don’t pony up, you’re still on the hook.

From Chicago Public Radio, Ashley Gross reports.

Ashley Gross: When Dee Hutchinson bought her condo, let’s just say this was not part of the plan.

Dee Hutchinson: Oh my God, this is the worst.

She and several others have just walked into a foreclosed condo upstairs from where she lives. The smell almost knocks us over. Hutchinson opens the fridge, and it’s covered with maggots.

Hutchinson: Oh my God. I’ve never seen anything like this before.

Hutchinson’s here to take stock of the damage, as she and her neighbors try to save the building. Foreclosures emptied out two-thirds of the 27 units here. By last winter, most other owners had stopped paying their monthly dues. That left Hutchinson and two neighbors trying to shoulder the costs all on their own.

Hutchinson: I was having a fear of waking up one morning, and I would be the only one in the building. It just scared me.

One neighbor says she even paid an extra $2,700 to keep the gas on. But that wasn’t enough — and it was shut off last April for six months, leaving the entire building with no heat or hot water. By the beginning of this year, banks owned 10 of the foreclosed units, and they’re legally responsible to pay condo fees of about $200 a month. But collecting from banks has been almost as tough as from the original owners. Hutchinson says she didn’t even really know where to start.

Hutchinson: I personally wanted to go after the banks myself but, you know, I can’t just, you know… I wouldn’t even know where to go.

So they turned to a lawyer, Ebony Wilkerson. She started chasing banks to get them to pay overdue assessments, but Wilkerson says it’s tough.

Ebony Wilkerson: It’s not like you can just call a branch and talk to the manager and the manager pay. Sometimes, you can get those contacts through the foreclosure attorney, sometimes they say, “Hey, after the foreclosure, it was transferred to another bank, so that bank doesn’t even have it anymore.”

Wilkerson threatened legal action and that got some banks to pay up — at least for a while. Bank of America is responsible for four units in the building. Wilkerson says the bank has paid big lump sum amounts on some units, after months of nothing. On others, it still hasn’t paid.

Bank of America officials didn’t respond to numerous phone calls and e-mails requesting an interview. One spokeswoman said in a statement the bank makes every effort to pay condo dues, and it’s just an oversight when it fails to.

Paul Leonard is with the Financial Services Roundtable, a banking industry trade group. He says banks aren’t set up to handle this.

Paul Leonard: The entire issue of a bank as landlord is a very challenging one, because they’re not in the business, nor do they want to be in the business of being a landlord. You know, they don’t have “Oh, we’ll just switch over to our system to pay condo fees.” They don’t have that.

Still, it’s in the interest of a bank to pay, because if a condo association goes broke, it can destroy the value of the whole building. But Tom Skiba says this is playing out in condo buildings all over the country. He’s CEO of Community Associations Institute, which represents condo and home owner associations. Skiba says some associations have taken drastic measures.

Tom Skiba: You know, we’ve actually run into circumstances where we’ve had a bank foreclose on a mortgage holder, take back a property, fail to pay the assessments for an extended period of time and we’ve seen the homeowners association or condo association file foreclosure proceedings against the bank and foreclose on them.

In Illinois, condo associations don’t have to go through all that. They can just take temporary possession from a delinquent owner — even if it’s a bank — and then rent the unit out. That’s what Wilkerson’s doing for this building. They now have four units rented and that money’s going toward the building’s common expenses.

Work man 1: We got to warm up the boiler nice and slow.

Work man 2: Very slow.

That’s the sound of workmen turning on the heat in Dee Hutchinson’s building last October, after her lawyer spent months to collect enough money from the banks. But Hutchinson says it’s unfair homeowners like herself have to hound banks just to get them to pay what they owe.

Hutchinson: I shouldn’t have to be the person — me a little bitty person, first-time home buyer — going after a major bank, hiring a lawyer to go after this bank to pay the assessments on somebody else’s property.

Hutchinson’s worn out from this battle. She says fighting first with her delinquent neighbors, and now the banks, makes her miss the days when she was a renter.

In Chicago, I’m Ashley Gross for Marketplace Money.

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