Pennsylvania Company Tells Condo Owners: Rent or Leave

July 2, 2012 — -- Condominium owners assume they will be able to settle down in their homes if they stay on top of monthly payments, follow homeowner association rules and maintain the property. But eleven condo owners in Reading, Pa. had a rude awakening when a developer purchased the property and turned the building complex into rented apartments.

Three years ago, Teresa Fusco, 56, bought a condo unit, appraised for $101,000, at Deer Path Woods in Reading, about 60 miles northwest of Philadelphia. Eleven units were owned and occupied while the other 97 apartments were rental units.

Fusco, a secretary who lives alone, had about $71,000 left on her mortgage when the property owner went into foreclosure last fall.

A developer, Kevin Timochenko, purchased the rental units for $7,200 at a foreclosure auction, as reported by AOL. That gave Timochenko almost 90 percent of voting power for the condominium homeowners' association.

Because Pennsylvania law allows homeowners who have 80 percent of voting power to control the sale of the entire property, Timochenko could legally convert the entire complex -- including the condos -- into apartment units for rent.

Fusco said she and the other 10 condo owners were given a choice during a condo association meeting on Dec. 22: pay rent for the property they had previously owned in addition to their mortgage payments, or move out.

"I was devastated because this was my home, not just my house," Fusco said. "It was where I was going to retire. If something happened to me, I could still afford my mortgage and my taxes. I was just completely taken aback."

Kevin Timochenko did not return a request for comment. Nicole Plank, an attorney for Timochenko's Metropolitan Management Group, did not return a request for comment either.

To add insult to injury, property values in Reading have taken a hit as in many other parts of the country, and Timochenko had the entire property appraised at a value that was less than fair market value, said Fusco and Fred Nice, her attorney.

The average appraised value was around $35,000 for each unit, whereas owners like Fusco had mortgages of around $60,000 to $90,000, said Tom Beaver, an attorney working with other former condo owners.

Pennsylvania state senator Judith L. Schwank, whose district includes the town of Reading, introduced a bill on Thursday that would allow half of the total number of unit owners to reject an appraisal when a single owner or a group acting together controls 70 percent or more of the votes. Unfortunately, she said, the bill, if passed, could not be retroactively applied to Fusco's situation.

"It's not fair," Schwank said. "The situation as it is dooms individuals who thought they would own property until they agree to sell it."

Schwank said the situation for Fusco and the other condo owners is rare, "but nevertheless it is devastating."

"These individuals weren't of great means," she said. "It might have been legal but it's not moral."

Michael Kim, a condo attorney in Illinois, who serves on the legislative board of the Association of Condominium, Townhome and Homeowners Associations, said some states, like Illinois, have laws that protect homeowners in distressed condo associations.

"If a condo property is not functioning -- with too many foreclosures or not paying utility bills -- then in our case the city can intervene and take over the property and have a receiver appointed and operate the property as best they can," Kim said.

"It's always a bad situation but at least maybe to the extent if there is a remedy for the city to get involved, it could be more considerate than a private investor just motivated by profit," Kim said.

Ronald L. Perl, a partner at the law firm Hill Wallack LLP in New Jersey and former president of Community Associations Institute, said in his 30 years of experience in community association law that he has never heard of a situation like that of Deer Path Woods, in which one person or entity has majority power and decides to terminate the condominium.

Pennsylvania is one of a dozen states that have created state laws based on the Uniform Condominium Act, promulgated by the National Conference of Commissioners on Uniform State Laws. The other states include Washington, New Mexico, Texas, Nebraska, Minnesota, Alabama, and Maine.

The Uniform Condominium Act provides guidance for condominium associations, including that owners of 80 percent or more of condo units can decide to terminate the condominium; those owners would then own a percentage share of the new single parcel of real estate.

Perl said he hopes the National Conference of Commissioners on Uniform State Laws and state legislators will reconsider ways to prevent a situation like that Fusco faces.

"I am troubled by the outcome of this case and think it ought to be looked at," Perl said. "I'm not saying I have an answer, but it raises a question -- is this fair for unit owners who are a minority of a condo under development to be treated like this?"

Fusco could have stayed to rent her apartment plus pay her mortgage, but she refused.

"There was never a question in my mind," she said. "I would not rent from a thief who stole my home. I can't imagine paying rent for everything I already purchased: my own wood and slate floors, beautiful iridescent glass tiles -- everything I enjoy. It would have been too emotional for me."

So Fusco moved out in February and is renting an apartment in Minersville, about an hour's drive north of Reading. The developer said they would write her mortgage company a check for $31,167.98 for her unit, she said.

Beaver and Nice and their clients considered litigation to challenge the appraisal.

"But it would have been an expensive court proceeding to do so," Beaver said. "We would have had to hire an expert appraiser to testify and there's no guarantee the court would side with you."

Fusco said her mortgage company, Chase Home Finance, declined her request to refinance her mortgage because she did not technically own the unit anymore; the developer did.

A spokesman for Chase told ABC News he was looking into Fusco's situation.

Because Fusco does not have $40,000 to pay the remaining amount on her mortgage, Nice has advised her to file for bankruptcy.

"She doesn't have the ability to pay and it will just be a way to allow her to give her breathing room according to bankruptcy rules," he said. It will give her a fresh start after something clearly that is not of her doing."

But damage has already been done to Fusco's credit score. She and Nice agreed that she should stop paying her mortgage once the developer announced he was going to convert the complex to rented apartments.

"My credit card companies are already telling me to cut up my credit cards," Fusco said, due to the missed mortgage payments. Fusco, who had a high credit score previously, had a $10,000 credit line on one credit card.

"If I need a car, I'm going to pay through the nose," she said.

Brendon DeSimone, a real estate expert at Zillow.com, said one lesson to be learned is that people who are considering buying a condo need to ask the property owners or managers what the long-term strategy is for the condos. He also advises that potential buyers be patient when it comes to buying into a development that has more renters than owners.

"I always caution someone buying from a developer without having the balance of apartments sold yet," he said. "I would rather buy resale or the last couple sold."