What has been the impact of the economy on arrears in co-ops since the fiscal crisis erupted in 2008?
While statistics are hard to come by, anecdotal evidence from lawyers and our asset managers indicate there has been little change, says Ira Meister, president and CEO of Matthew Adam Properties, a leading property management firm.
Foreclosure rates decreased every year since 2006
Perhaps one way to look at this is, Meister says, is to look at Crain’s analysis of mortgage foreclosures in Manhattan, Brooklyn and Queens from 2006 to 2012. While there was an increase in foreclosures in Manhattan and Queens from 2008 to 2009, the overall trend has been down. In fact, Meister points out, the foreclosure rate in 2012 is lower in every borough than in 2006.
While foreclosure differs from being in arrears on monthly payments, each obviously indicates a resident suffering financial stress and an inability to pay, so it can be argued there is a correlation, Meister says.
Shareholders in arrears causing foreclosures have not been the case in recent years
The situation since 2008 is contrary to the housing crisis in the early 1990s when many co-ops experienced severe problems with shareholders in arrears and subsequent foreclosures. The failure to make timely payments by a handful of shareholders in a co-op put a burden on the building’s finances. The other shareholders had to make up for the revenue shortfall and put the entire property in financial hardship. This has not been the case in recent years.
One reason, Meister explains, is that co-op boards have become more stringent in reviewing the financials of prospective buyers reviewing their income as well as liquid assets.
The issue of arrears, though, is one that should be of concern to all boards and property managers regardless of the economy as individual issues can affect a resident’s ability to pay. “It is wise for boards and managers to have procedures in place in the event the situation arises,” Meister says.