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  • Condominiums in crisis: Financial troubles put many communities at risk

    September 19, 2016
  • By Bill Turque September 18

    jn1_02051465070415

    For five summers, a tarp has covered the swimming pool at Grand Bel II, a condominium community in Silver Spring that has no money for lifeguards, chemicals or insurance. The Vistas at Washingtonian Woods in Gaithersburg faces $600,000 in repairs but has just $400,000 in cash reserves.

    At Saxony Square in Alexandria, an unemployed man nine months behind on his mortgage negotiates with lenders to keep his two-bedroom condo. His neighbors struggle to pay their monthly fees; since 2010, Saxony’s board of directors has filed more than 80 court actions to try to collect such assessments.

    Even as posh condos rise in trendy neighborhoods around the nation’s capital, many older complexes are mired in a recession that never ended. A cycle of aging infrastructure, limited resources and foreclosure is putting these communities in a deep financial hole, threatening what traditionally has been an affordable path to homeownership for the working class.

    Monthly fees, the financial lifeblood of condo developments, have risen sharply as boards try to generate cash for long-deferred maintenance and to cover basic expenses. As a result, more owners can’t make their payments, and fewer prospective owners can afford to buy in.At the same time, tightened lending rules, and a reluctance among banks to foreclose on units that will be hard to resell, have boosted the number of long-vacant condos in many complexes, further depleting the flow of fees that pay for utilities, trash collection, upkeep and repairs.

    “These communities are suffering desperately,” said Vicki Vergagni, community manager at Glen Waye Gardens in Silver Spring. “This is potentially a great type of housing that is affordable. But public policy has not foreseen the issues it’s created.”

    A broken model

    Grand Bel II, a 1960s-era complex off Georgia Avenue and Bel Pre Road, “is not the Ritz,” as former property manager Eric Cooper put it. But it has been a sturdy launchpad for immigrants and young families.

    Bulgarian-born Aneta Lefterov purchased her two-bedroom in 2010 for $106,000, a bargain price, flattened by the housing bust. She took advantage of a Federal Housing Administration-insured loan, allowing her to make a low down payment, and was able to stretch her salary as a workforce consultant for the state of Maryland to cover her mortgage payment and the $490 monthly fee.

    “Basically I like it,” said Lefterov, 53, “if there wasn’t this problem.”

    The problem is the condo economic model, in which your neighbors are also your business partners, obligated to pay their share of common expenses.

    Even before Lefterov moved in, there were signs of distress. As the economy deteriorated, more Grand Bel II owners had trouble paying their bills. To forestall mortgage default, many opted to stop paying monthly assessments. Routine maintenance was put on hold. The pool stayed empty; weeds poked through cracks in the tennis court.

    Last year, the council passed a law that denies condo owners the licenses required to rent out their units unless all common ownership fees are paid.

    Some experts say better oversight and tighter restrictions are not enough, predicting that some complexes could deteriorate to the point where government agencies will have to intervene.

    “Without significant changes, you’re going to have cities and states condemning and taking over these properties,” said Natalie Stewart, president of a California-based condominium consulting firm.

    Christopher Anderson, chief of the community development division for Montgomery County’s Department of Housing and Community Affairs, said such a scenario was “not outside the realm of possibility” but added that the resources available to local government are limited.

    “We cannot as a county responsibly lend money to condo associations to fix problems,” he said.

    County officials are exploring whether to partner with an affordable housing nonprofit that would buy underwater or foreclosed units at Grand Bel II, then sell those units to solvent owners.

    In the meantime, youngsters who live at the complex spent another summer running past the closed swimming pool.

    “I feel for the children,” said Luzia DaSilva, a condo owner at Grand Bel II for 13 years. “Every year, they ask me, ‘Is the pool going to be open?’”

    © The Washington Post Company