Foreclosures in condominiums continue to drive foreclosure rates in far north side neighborhoods that are higher than the citywide average. They are also creating headaches for neighbors living in the condo development and the immediate neighborhood, especially when the foreclosures involve a failed and abandoned condo development. Lakeside has been identifying such properties, with the help of community residents and the City, in hopes of acquiring and redeveloping one or more of these properties into quality rental housing. The organization is also working to educate condo residents how to make the best of a bad situation when a foreclosure occurs in their building.

Foreclosures are never a good thing. For the borrower, the loss of his or her home is a tragic and painful event. For the lender, a foreclosure is expensive and likely to result in major losses, especially in a period of declining property values. For lender and borrower, the best foreclosure scenario is the one that never happens.

When foreclosures involve a unit or units in a building, other residents often face additional costs, to make up for unpaid assessments by the owners who lost their homes. By law, the person who buys the unit from the lender later can be required to pay up to 6 months unpaid assessments, but with the soft market and the long foreclosure process, associations may have well over 6 months of assessments to collect.

Illinois law is somewhat unique in that it allows the association to evict a unit owner for nonpayment of assessments. The owner continues to own the unit and is obligated to pay expenses, but the association can gain possession and rent the unit out for up to 13 months. In seminars on condo collections and foreclosures, Lakeside explains how this process works. Lakeside also encourages associations to explore alternatives, including referring owners to foreclosure prevention counseling and offering hardship-based payment plans. In many cases, the unit owner may be suffering a temporary hardship or need to reorganize his expenses, which can be addressed through counseling. Getting evicted is the worst thing that can happen in such a tough time, and it is an expensive and stressful way for the association to try to recapture its assessments.

The association can also consider purchasing the unit from the owner, including through what is known as a short sale, or by exercising its first right of refusal if the unit is offered for sale at auction. Buying the unit outright serves at least two purposes. First, it helps salvage the unit owner before excessive costs, such as interest, penalties, and legal fees, have been piled onto the mortgage, making the purchase that much more expensive. Second, it allows the association to avoid having a foreclosure in the building, which impacts the sale prospects of other unit owners and their ability to get financing for projects, as well as other costs.

During the time the association owns the unit, it will be obligated to pay the costs on the unit, which it can recover by renting the unit or placing it for sale. Given the nature of the market, associations which buy units are better off renting them, at least for the next several years. However, if they are sold later, the association will likely benefit from any appreciation in the property’s value.

Lakeside has been working with condo associations to develop and implement strategies for dealing with foreclosures. The agency is also a HUD-certified housing counseling agency and has helped many unit owners avoid foreclosure altogether. The agency is currently working to develop a toolkit of strategies for condo associations with foreclosures, but in the meantime, we encourage unit owners and associations to contact Lakeside to see how we can help.

When the foreclosure involves an entire building, it presents a different set of challenges. Vacant buildings present easy targets for vandalism, theft, or squatters. It can also impact property values and create a visual eyesore for residents. Under Chicago city code, vacant buildings are supposed to be registered with the Department of Buildings and secured so that people cannot get inside them. Fines for failing to do so are severe, so residents with vacant or abandoned buildings should contact the city to make sure the building is properly registered and secured.

These properties, many of which are failed condo conversions, may provide the best opportunity in a long time for the creation of quality and affordable rental housing on the far north side. Creating more rental opportunities would be appropriate, given the demand for rental housing and displacement of renters by condo conversions in the first place.

Under the Neighborhood Stabilization Program, qualified developers can receive federal funds to purchase, rehab, and rent or sell housing units, which are currently vacant, abandoned, or foreclosed. Lakeside is working with several development firms to identify buildings, which would be acquired and rehabbed. Once completed, the rehabbed units would provide affordable and attractive rental or purchase units at prices neighborhood residents can afford.

To learn more about Lakeside’s strategy for acquiring vacant, foreclosed, or abandoned properties, please contact Brian White at (773) 381-5253.