Editor's note: The following story excerpt is republished with permission of AOL Real Estate. See the full story, "'This Is Crazy': Company Snatches Condos From Owners."
By TEKE WIGGIN
Teresa Fusco thought she had done everything that she needed to do to sail comfortably into her golden years. She owned a condominium unit in Reading, Pa., with an appraised valued of $101,000, and she had a rainy-day fund in case her health failed.
So she was shocked when earlier this year she suddenly found herself with no home and a wrecked credit score after a company that bought most of the condo complex sold her unit for less than half of what she thought it was worth. To make matters worse, Fusco (pictured left) is still on the hook for the $71,000 mortgage on the property that she no longer owns.
"As a single woman, 56 years old, who works hard and was looking to retire in that place, I had everything set up," Fusco said.
Her plans -- and those of 10 other homeowners who say they've had their properties stolen from them -- started to unravel when Deer Path Woods, the condo complex where they lived, went into foreclosure last fall. Fusco's unit was one of 11 that were individually owned; another 97 were rental units. When the owner of the rental units failed to pay his mortgage, a company under the control of local developer Kevin Timochenko snapped all of them up for $7,200 at a foreclosure auction.
The purchase gave Timochenko's company, Water Polo I, LP, control of nearly 90 percent of the units of the complex, arming it with enough votes to dictate condominium association policy. Soon after the purchase, Fusco and her fellow homeowners received a letter informing them that, come January, condo association fees would more than double, to $450 a month. The increase, according to a representative of Water Polo I, was to pay for upgrades to the complex that the tenants had demanded.
"We were all freaking out because we couldn't afford that in addition to the mortgages that we were paying," said former unit owner Adrienne Dawkins (pictured with her children below), who took out a $102,500 mortgage to buy her unit at Deer Path in 2007, and has since been forced to leave her home along with her three children. "We agreed to pay $200 when we bought our homes."
Anxiety over raised assessment fees paled in comparison to what happened next: The new condo owner called a vote to terminate the condo association altogether.
From Condos to Rentals
Dissolving a condominium organization isn't unusual. Termination reduces management costs, and in a depressed market makes it easier for homeowners to sell their units. It's often easier to find a buyer for an entire condominium, and a bank doesn't have to approve the sale. After termination, units of the dissolved condominium sell in bulk and are then typically converted into an apartment complex owned by a single developer.
"By buying the 89 percent of the units at the foreclosure sale last year, [Timochenko] acquired all of the units and all of the votes he needed to approve a termination," explains Tom Beaver, an attorney whom some of the unit owners turned to for help.
Here's the rub: Under Section 3220 of the Pennsylvania Uniform Condominium Act, when a condominium is dissolved, the condo association can put the entire condominium up for sale, regardless of who owns the individual units. So in acquiring control of the condo association, Water Polo I also gained the right to sell Fusco's home.
In April 2012, Deer Path Woods was put up for auction. Beaver, who attended the auction, said it sold for $3.425 million.
The buyer? Another company controlled by Kevin Timochenko. Along with the 97 rental units, the sale included the 11 owner-occupied apartments. The new buyer, Hoya I, LP, then converted the condominium into an all-rental apartment complex, now known as Spring Valley.
"The effect of terminating the condominium was to divest all of the unit owners of their real estate interest," Beaver said, adding that rentals are especially profitable for developers in today's market of high rental rates and diminished home values.
Read the rest of "'This Is Crazy': Company Snatches Condos From Owners," at AOL Real Estate.
More stories from AOL Real Estate:
Why Millions Aren't Getting the Mortgage Assistance They Need
Wacky Home on Shelter Island, N.Y., Looks Like a Giant Toy (VIDEO)
Couple Tears Down $4.2 Million Manse for a Better View
|Contact Inman News:|
Letter to the Editor
- Real Estate