Fred Ostovar

When one of the condominiums at Stanton Gardens a 150-unit complex in Winchester, fell victim to foreclosure last month, its owner left behind more than an unpaid mortgage. He also owed the condo association $8,000 in fees and legal expenses.

The association, which has sued the man and his lender to collect the overdue balance, believes it eventually will get its money. But until it does, the complex has delayed small repairs, such as fixing broken doorbells, to focus on bigger issues, like landscaping.

The foreclosure crisis sweeping the country is affecting more than the people losing their homes; it is also ensnaring their neighbors. When condo owners facing foreclosure stop paying their fees for shared costs such as maintenance and insurance, condo associations struggle to pay bills. And sometimes other condo owners are forced to pay higher fees to cover their neighbors' debts.

In large complexes, unpaid fees may have minimal impact because reserve funds can make up for the shortfall or because the overdue amount is divided among so many units. But in small complexes, such as two- and three-family homes converted into condos, one unit's unpaid bills can take a toll on other owners' wallets.

But these condo owners have recourse: Unlike during the last real estate slump of the early 1990s, when some condo associations were ruined financially by unpaid fees, Some states such as Massachusetts now make it easier for condos to recover delinquencies. That has helped reduce the number of condo owners becoming saddled with the debts of a neighbor.

The "super lien" law, adopted in 1992, enables condo associations to collect at least six months worth of unpaid fees per unit in the event of a foreclosure. By giving condo associations a so-called priority lien on financially distressed units, it also places them in line ahead of lenders to collect outstanding debts.

Before the law was passed, a condo association could secure a lien on a delinquent unit, but if a bank foreclosed, the bank would receive its money before the association did when the property was subsequently sold. That often meant the association never received any money at all.

Typically, when a homeowner falls behind on condo fees by at least 60 days, the condo association or its lawyer sends a reminder letter to the owner and lender. At that point, many owners work out payment plans or the lender steps in and pays the delinquent amount. If the situation isn't resolved after a second letter, the association will sue both the owner and lender. That lawsuit gives the association "priority lien" status.

Then, when the unit is sold by the owner or at a foreclosure, the delinquent fees are paid to the association from the sale proceeds.

If condo associations don't begin debt-collection efforts promptly, they risk getting stuck with the overdue fees. When that happens, they may have to levy special assessments, increase condo fees, dip into reserve funds, or use operating budget emergency money.

The effect of a unit owner not paying condominium fees is to create a large burden on innocent unit owners. No one in a single-family home is obligated to pay his neighbors' debts and condo owners should not have to pay their neighbors' debts either.

Are you currently living in a rental, planning on renting or sharing rent on a house?

If so, let me help you take a realistic look at the situation that you are in or about to get yourself into.

Many people, especially the younger generation, rent because they are afraid of taking on the responsibility that comes with owning a home. Some people simply think they can't afford a monthly mortgage. Here, I want to tell you why renting is NOT be your best financial option.

Renting can seem less complicated and easier than owning your own home; yet when all the factors are taken into consideration you soon realize how significant the financial rewards of owning a home can be, as opposed to renting property.

Let's examine a situation where you are moving in with two friends somewhere in Fairfax or Prince William County and want to live in a 3-bedroom house. Houses in our area run around $100,000 to purchase or $1,000 per month to rent. Putting 10 percent ($10,000) deposit down on the cost of a house and taking out a 30-year mortgage of $90,000 at 5.25 percent interest, leaves your costs per month approximately around $711.

Mortgage Payments: $496

Taxes and Insurance: $140
Miscellaneous/Repairs: $75
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Total Expenses: $711

So instead of $1,000 a month, you can have your own home and begin building equity for about $289 less per month.

When you are the one taking the risk of buying the house, you may want to calculate your roommate's rent on the original $1,000 per month rate. You bring in $700 ($350 x 2) per month, plus they are paying two-thirds of the utilities. Take the $700 from the $711, and that leaves your expenses at $11 per month, plus your portion of utilities.

But we are not done yet! Assuming your home increases in market value (or appreciates) at an average of 3 percent per year (this is low for some areas, especially Northern Virginia) and you live there for three years, it will be worth $109,250 when it comes time to sell. During those three years, your mortgage (loan) will also be paid down to $86,500, creating an extra $3,500 in equity.

Equity [Down Payment + Mortgage Payoff]: $13,500
Appreciation [Increased value]: $9,250
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Total Equity: $22,750

Ok, so let's make sense of all those financials. In three years, you turned $10,000 into $22,750. In investment terms, this is an annualized rate of return of 31.5 percent per year. This doesn't even calculate the amount you will have saved in living expenses. The best part is, all of this money goes in to your pocket and not the landlords!

Here are some final thoughts on owning vs. renting

• Housing prices are the lowest they have been yet in the past 10 years. If you look at Real Estate history, you see that home prices fluctuate based on the economic conditions and the supply and demand of consumers in the market. So now that market prices have hit rock bottom what could you possibly have to lose?
• The mortgage rates have been dropping every week. The Federal Reserve has cut its target for the federal funds rate to a range between 0 percent and 0.25 percent and promised to keep it there for some time. This will make the prime rate fall to about 3.25 percent.
• Foreclosures (bank-owned homes) are also at an all time high. It is sad to see that many people have lost their homes and were forced to surrender their properties back to the lenders. However, the banks still need to resell these homes in order to make up for their losses. The bank's loss is YOUR gain.

Why rent when you can own!