New report offers municipalities tools to combat condominium foreclosures


The foreclosure crisis continues to evolve and pose new challenges for communities working towards recovery. Chicago area municipalities, community and policy groups, and financial institutions have been working together for years to develop tools and strategies to handle the problems associated with foreclosures on single-family homes, many of which have been highlighted by Regional HOPI. A new threat is commanding these groups’ attention:  foreclosures on condominiums. 
 
New data show that condominiums are a significant driving force behind foreclosure growth in many parts of the Chicago region. For example, in the suburbs of Northwest Cook County, foreclosures grew by 24.5 percent from 2009 to 2010—one of the highest rates of growth in the region. However foreclosures on condominiums grew by 32.3 percent and made up nearly half of the foreclosures in Northwest Cook County in 2010 (42.5 percent). 
 
Clearly, condo foreclosures are becoming a problem that the region can’t afford to ignore. However, condo foreclosures are a different beast than foreclosures on single-family homes and require new tools and innovative approaches. Regional HOPI recently highlighted some of the problems unique to condo foreclosures, including restrictions on credit that make it difficult for prospective buyers to purchase foreclosed condos. Two new resources give insight into the issues towns in the Chicago region are seeing with condo foreclosures.
 
 
The Metropolitan Mayors Caucus surveyed 85 municipalities in the region to see what challenges they faced with condo foreclosures. Municipal leaders responded that:

  • Condo associations are not equipped to handle the issues that arise with foreclosures. They are having a difficult time with property maintenance as foreclosures rise and dues are not paid.
  • Damage in foreclosed units can cause damage to other units, such as frozen water pipes bursting when the heat is turned off.
  • It is difficult for our municipality to find information regarding the vacancy of condo units. 

 
Additionally, a new report from Urban Land Institute (ULI) Chicago detailed more challenges municipalities face with condo foreclosures, based on a workshop on the issues facing Arlington Heights, a village in Northwest Cook County.  Condo foreclosures made up 47.4 percent of Arlington Heights’ foreclosure filings in 2010. These challenges include:
 

  • Identifying distressed condo units.  Unlike single-family homes, signs of distress on a vacant, foreclosed condo unit may not be visible from the outside. This makes it difficult to identify potentially destabilizing factors.
  • Obtaining data on whether or not a condo unit is occupied by an owner or renter and understanding which parties have interests in the property. 
  • Managing the diverse set of situations facing different condo owners.  Each unit has a separate owner, independent financing, and different levels of default risk that all affect the building’s well-being. Some units may be occupied by renters or owned by non-occupant investors. This makes it difficult to assess the state of the property, as well as complicates communication about what approach to take with the building. 

 
In response to these challenges, participants in ULI Chicago’s workshop set out to develop a set of recommendations to help Arlington Heights evaluate distressed condo buildings and take action to stabilize them. These recommendations are relevant to any Chicago area community looking to create proactive policies towards condominium foreclosures.
 

“We could see from the data that there was active condo foreclosure in our community, but no owners were reaching out to us for help,” said Nora Boyer, Housing Planner at Village of Arlington Heights. “ULI Chicago’s Technical Assistance Workshop gave us the tools to assess the stability of a condo property and develop a strategy for appropriate mediation to assist our residents if we discovered condo distress.”
 
ULI Chicago’s recommendations include:
 

  • Conduct a three-step assessment process to determine the impact of foreclosures on the building as a whole. The report outlines tools from the County Assessor, Recorder of Deeds, and more that help municipalities understand the property dynamics within a building, including lenders providing financing, foreclosure transactions, and property transfers. Identifying patterns from this information can give clues about the stability of the building and map the stakeholders municipalities should involve in the conversation. 
  • Pass a municipal condominium policy. Municipalities can require condominium associations to register with the municipality and provide reports on building health. Policies can also be used to encourage fiscal health in condominium developments.
  • Use existing tools to stabilize multifamily properties. Existing laws, such as the Distressed Condominium Property Act, can be used to minimize the negative effects of condo foreclosures on their communities. 

 
For more information about tools for municipalities to combat condominium foreclosures, please contact ULI Chicago’s Christine Kolb at 773.549.2655 or Christine.kolb at ULI dot org.  The report also includes strategies for addressing foreclosed multifamily rental buildings. You can learn more about the Metropolitan Mayors Caucus’ survey by contacting Allison Milld at (312) 201-4507 or amilld at mayorscaucus dot org.
 

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