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October 22, 2007

Foreclosures 'like a cancer' for some communities

A West Side development struggles to stay afloat as town homes sit empty

Minnesota Foreclosure & Real Estate News

When he moved to Grey's Riverview Terrace three years ago, Christopher Rocco figured the town home association that runs the complex was in good enough shape. It had about $25,000 on hand, and most of the units had just been reroofed.

He never envisioned the jam Riverview Terrace finds itself in today. The wave of foreclosures sweeping across the Twin Cities has hammered the little community on St. Paul's West Side.

Of the 21 town homes, nine are in foreclosure, according to Rocco, the association's 37-year-old president. The group can't fix Riverview's rotting siding because it has just $37 - plus $5,000 in debt it can't pay and a ledger filled with unpaid monthly dues and late fees totaling more than $35,000.

"We are on the verge of losing everything," Rocco said. "It's a lot of stress."

Riverview Terrace shows how the steepest housing slump in 16 years ensnares not just the families losing their homes but their neighbors and neighborhoods as well. Condo and town home complexes, where homeowners are tightly linked financially, are particularly vulnerable to the effects of foreclosure - especially if the association budgets aren't in great shape to begin with. Homeowner associations across the Twin Cities are struggling with similar foreclosure issues, attorneys say, although one described Rocco's situation as "fairly extreme."

"It is a growing and very real problem for a number of associations, both new and old," Minneapolis attorney Patrick Burns said.

"It's like a cancer."

Burns said he represents more than 75 homeowner associations in the area, nearly all of them struggling with foreclosures that either the bank initiated or they did themselves because owners hadn't paid their dues.

At Riverview Terrace, the two-bedroom town home Rocco and his wife, Tammy, bought three years ago for $115,000 was their first home purchase. Built in 1982, the town home had big rooms, and his unit had a spacious basement - plenty of room for their new son, who was on the way. And the river view? Sure, you can see the Mississippi, if you cut down the trees, ignore the rail yard and look past the airport, he said.

Within a year, the foreclosures started.

At first, when a few members stopped paying fees, an attorney advised the association to start the foreclosures themselves, Rocco said. That meant legal fees. Then more foreclosures started piling up.

Rocco, who works at Classic Lines, a vinyl graphics shop, said he doesn't know which of life's financial potholes his former neighbors hit or which mortgage lenders foreclosed on his members. He said he suspects many of his neighbors had high-interest-rate subprime mortgages, or adjustable-rate mortgages such as the one he had until he and his wife refinanced it last year into a manageable fixed-rate mortgage.

"I think people got in over their heads," he said.

To be sure, the homeowner association itself isn't blameless in its budget problems. Association dues had been set too low for years, Rocco said, and the group wasn't always rigorous in collecting fees. Still, the group never figured that nearly half its members would stop paying dues. Now, five of the nine units in foreclosure sit empty.

Complicating matters, the remaining owners can't foot the bill to replace the damaged siding, a type of engineered wood.

"There's a couple of places where birds are living in the siding," Rocco said. "It's just horrible."

To fix it, Rocco estimates, his association would have to levy a special assessment on remaining homeowners for $5,000 to $10,000 each. That's just too much, he said, given that pretty much everyone in the complex lives from paycheck to paycheck. With no money even for lawn maintenance, Rocco does the mowing and raking himself Friday afternoons after work.

The eyesore siding compounds the challenge of selling the empty units in a market glutted with offerings. Jeff Detloff, president of Eden Prairie-based Detloff Marketing and Asset Management, which handles foreclosed properties, is offering one of the units - a three-bedroom, one-bath town home with an unfinished basement - priced at $69,900.

"I'm not quite sure what to do with that one," Detloff said.

He said he's working with another St. Paul homeowner association in a similar predicament but isn't sure how widespread such problems are. Dan Greenstein, an attorney at Minnetonka-based Standke, Greene & Greenstein familiar with the complex, said its situation was extreme, because the value of the units had "plummeted."

The state chapter of the Community Associations Institute, which represents 500 homeowner associations locally, said the issue is on its radar, though it hasn't surfaced as a major problem yet. What happens more often, said Paul Hanscom, the group's executive director, is that homeowners find they can't sell a unit and then try to rent it out, creating conflicts with their association and other members.

Hanscom said his members are alert to the foreclosure predicament and are braced for it "as a worst-case scenario."

Jennifer Bjorhus can be reached at jbjorhus@pioneerpress.com.

or 651-228-2146.

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