patrick.net

Be very careful about condo developments with lots of underwater owners. When a condo owner with no equity decides to walk away they usually stop paying the HOA dues, and the HOA is in line behind at least the first mortgage note holder, so it's unlikely the HOA will collect anything from the foreclosure or short sale. That means all the other members of the HOA need to cover the shortfall in the HOA accounts. This can be a vicious spiral, with skyrocketing HOA fees and/or "special assessments" triggering other underwater owners to walk, making things worse, repeat.

Maybe Patrick should add to this site a rating of how underwater a condo complex is.

I'm seeing a lot of older condo's in the Millbrae/Burlingame/San Mateo area with "Bank Owned" signs on them.

it sounds like that complex has something wrong with it if the price has dropped 40%

you might want to find out what the problem is (unless all condos in the area have dropped by that much)

I've been thinking - although I see the final purchase price of the units in this complex, I have no clue what people did for a downpayment, what kind of salary they have or how stable their jobs are. So, while they are underwater the real questions are:
* how far underwater they are
* do they have funds to last it out
* are they willing to try to last it out
* what is the likelihood they walk away
They say you cannot predict the future and no one has a crystal ball, but there just seems to be too much downward pressure out there. Maybe what this country needs is an extra strength dose of POSITIVE THINKING!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

I'm not sure if there is a way to look into the HOA dues, and who might owe currently. If there was a way to look at HOA history, you could probably get a good idea of what is happening.

You're assuming 25% of the building is under water because you've seen buying prices? There are probably some unknowns here. Refinancing of people who weren't under water, they could have put themselves under water. However, you have to remember that if someone is under water, there are still costs involved for packing up and leaving. Social stigma is a big one, and one that banks want to keep from spreading to a majority of the population. People will keep paying because they think it's right, regardless of the business decisions they perhaps should be making. Then there are others who might have put down 10% but that was 5-10 years ago. That could have brought them a lot closer to even. Then there is the cost of actually moving and dealing with the banks. Many people would rather not rock the boat, and would rather just keep paying.

Over all if there are 25% under water, they have to get far enough that it becomes financially sound to walk. Depending on how long that process takes, could dictate how much the HOA dues might be impacted. If 25% walk, and it takes 6 months to flip those units, for 6 months you could see your HOA dues go up roughly 30%. That really isn't that much over all. In all likelihood you would see them trickle through. Maybe 1/4 of them stop paying and then leave. For 6 months, that means the rest of you are paying for those 7%. Then another 1/4 take off, maybe that increased HOA was just enough to push them out. The end result is nearly the same, it's just spread out over a longer period of time.

If you can get any info on HOA dues, you'll be able to figure it out for yourself. if they have 0 rainy day funds, and already have issues with collections, it might not be a good place to move into. If they aren't having issues with collections, and the current people aren't under duress, it probably means that even if those 25% were to leave, things wouldn't change that much for you.