Who’s On First

Financial Justice Ideas and Issues Personal Writings

New York    The Wall Street Journal ran a piece about the problems being faced in new developments and condominium operations that rely on homeowners associations to provide amenities and in some cases necessities for residents.  I had been attracted to the article by the headline that people weren’t “paying dues,” and being a huge believer in dues-based organizations, I was magnetized to the article.  In its own right it was both depressing and fascinating.  It was depressing because this is fallout of the homeownership and foreclosure crisis in the USA, and fascinating because the growth of such associations sneaks up on you:  300,000 across the country!

    But, this is more than a “crisis of the commons” here; although the way developers are off-loading their responsibilities to homeowners to really “finish” the job is an issue itself.  Part of the problem is the responsibility to continue paying dues to the association so that it can maintain the complexes once properties move into foreclosure.  

    Here we once again see the issue we are finding in our communities all over the country:  who’s on first — the bank acting as the trustee of the property being foreclosed or the servicer who pulled the pin on the property and is responsible for maintenance?  A lawsuit against U.S. Bancorp (based in Minneapolis) by some of the associations in Florida has attempted to clarify this issue by arguing that the bank should pay as the “ultimate owner” dismissing the banks argument that it is essentially a passive trustee.  The bank has fingered the servicer, and since there are tens of servicers involved in these multiple foreclosures, it would force the homeowners to sue all of them for recompense.  Not surprisingly at this point, no overdue fees or membership dues have been collected.

    We have been over this same issue repeatedly and at the least it points up the lack of transparency and accountability that is at the heart of this crisis for homeowners everywhere.  Servicers for many of the securitization pools, like Merrill-Lynch, have literally scratched their heads in meetings with us when we have asked what should trustees do to help and have scoffed at trustee’s willingness to collect their check without having either much power or responsibility, as if they were mere “agents” for the combine.  Trustees like Credit Suisse and Deutsche Bank have gone out of their way to be willing to finger the servicers in any foreclosure we bring to them.  

    High on the list of items that regulators and legislators need to address in preventing the “next times” in the lessons of this crisis are determining exactly who is on first and what is on second in all of these situation, so that the behind the scenes finger point ends, and the buck stops being passed.