02 Nov Condominium Governance: Guiding Unit Owners through Financial Struggles
The overall health and stability of a condominium community is often viewed as a function of the whole rather than the sum of its parts. As such, those choosing to make their home in a condominium community understand the manner and extent to which their standard of living is dependent upon one another. This is particularly true in the context of a condominium community’s financial situation.
In times of economic prosperity, the dependency among unit owners can operate to make the community greater than its parts. Conversely, periods of economic adversity increase the likelihood that hardships experienced by some unit owners will be felt throughout the community.
Struggling associations often find themselves in a catch-22: raise assessments to compensate for delinquent owners and risk causing additional unit owners to default. Doing more with less may also be counterproductive. Choosing to cut amenities or delay necessary maintenance and repairs can render the community less attractive to prospective purchasers, or allow the community to fall into a state of disrepair, thereby continuing the vicious cycle.
Typically, once an owner falls behind on the mortgage payments, it is not long before other bills, such as insurance and assessments, become delinquent. Knowing this, experienced association board members would be doing a service to their community by providing guidance to those unit owners who are struggling financially. In addition to lending their own experience and expertise, board members now have an additional resource: Fannie Mae’s Know Your Options campaign.
Fannie Mae is a government-sponsored enterprise designed to provide liquidity, stability and affordability to the U.S. housing and mortgage markets. Rather than provide home loans directly to consumers, Fannie Mae operates in the domestic secondary mortgage market and works with various mortgage bankers and brokers to ensure they have the funds to lend to buyers at affordable rates.
In an effort to combat the financial hardships currently facing homeowners across the country, Fannie Mae launched http://www.KNOWYOUROPTIONS.COM. This campaign, which is designed to help homeowners who are struggling with their mortgage payments or facing foreclosure, educates homeowners about various options that may be available.
For each of the following options, the website provides a description of the benefits, how it works, how to take action, and various informational videos.
Options to Stay in Your Home
- Refinance. Replace an existing mortgage with a new mortgage with new terms, interest rates and monthly payments.
- Repayment Plan. Bring existing mortgage current by adding a portion of past due amounts to regular mortgage payments over a period of time.
- Forbearance. Reach an agreement with the mortgage company to temporarily suspend or reduce the monthly mortgage payments for a specific period of time.
- Military Forbearance. Similar to non-military forbearance but with additional benefits, such as longer forbearance period and no adverse impact to credit score.
- Modification. Reach an agreement with the mortgage company to change the terms of the existing mortgage, such as monthly payment amount, interest rate, length of loan, etc.
- Deed-for-LeaseTM. Fannie Mae program allowing owner to lease the home for up to twelve months at current rental rates after transferring title to the mortgage company.
Options to Leave Your Home
- Short Sale. Sale of home for less than the balance remaining on the mortgage.
- Deed-in-Lieu of Foreclosure. Voluntarily transfer title to the home to the mortgage company in exchange for a release from the mortgage loan.
The website also provides resources for those struggling with their mortgage payments, including:
- Fannie Mae Mortgage Help Centers
- Housing Counselors
- Understanding Your Credit Score
- Ways Home TM Interactive Video
- Helpful Forms (Financial Checklist & Contact Log)
- Frequently Asked Questions
- Links to Helpful Sites (Fannie Mae Loan Lookup)
Finally, the website warns of scams targeting distressed homeowners and promising immediate relief from foreclosure. To avoid becoming a victim of a scam, homeowners should be on the lookout for anyone demanding payment for counseling services (HUD provides such counseling free of charge), or anyone asking a homeowner to sign over their title, redirect their mortgage payments, or stop making their loan payments. These are red flags for a scam.
Condominium board members may not have a statutory obligation to offer financial guidance to struggling unit owners. However, the information available at http://www.knowyouroptions.com can make the difference between a delinquent unit owner and a unit owner who continues to be a contributing member of the condominium community. This difference not only benefits the individual unit owner, but the community as a whole, and that should be the goal of every board member.
If you would like more information about condominium governance and risk management, please contact us.