Time to bail-out condo associations?

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South Florida real estate broker Ricardo Wolf of Wolf International Realty, Inc. recently argued that a portion of the funds from the stimulus package should be used to "stabilize" struggling condominium associations in hard hit locales, where soaring foreclosure numbers are giving associations a hard time collecting HOA dues.

It sounds crazy, and self-serving. Wolf is, after all, a Florida real estate agent. But he actually might be on to something. When condominium associations run into trouble and are unable to maintain common areas, it causes property values to plunge. Property values plunge, more people let their homes go and the result is a vicious cycle of foreclosures and a deteriorating building for the hearty souls who stick it out.

If things get bad enough, the condos can become almost completely unsaleable and then guess who gets stuck with the losses? The banks, Fannie and Freddie and, by extension, the United States taxpayer. Wolf writes:

No experienced Realtor, educated investor or potential resident should ever consider recommending or purchasing in a ''problem development,'' a title shared by many newly-constructed Sunny Isles high-rises. Simply, the risks associated with buying into these problem developments, or those whose revenues cannot support their massive operating expenses due to owner and/or developer maintenance defaults, is not a smart decision at any price

As crazy as it might sound to lend taxpayer money to luxury condominium projects in South Beach, it might not be such a bad idea: It actually might be more economical than letting them fall into disrepair because, remember, we're on the hook either way.

A free-marketeer would argue that we should just let the prices fall to the point where someone scoops up the condos who can pay the fees but if that price is really low -- like say, $10,000, which is what some condo units in once hot areas are now selling for -- the losses could be far greater than what it would cost to prop up the HOAs.

The risk is that there are simply too many condominiums in these overbuilt areas and that propping up the HOAs won't solve the fundamental problem: There are many more units than there are people who want to live in them. The other problem is that luxury condos are about cache and status: What self-respecting poseur would ever dream of buying a condominium in the projects? Because if you lend government money to Sunny Isles high-rises, that's basically what they are. No amount of granite countertops and hardwood flooring can change that.

Still, it's an interesting if completely unpalatable idea.
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