Back in March I had the opportunity to do a Lexis Nexis search for foreclosed real estate throughout the entire U.S. Using marina as a keyword produced 76 marina dockominiums out of the first 535 records (there were several thousand and I only needed to do a random sample). That’s 14.21 percent of all marina pending court cases. As Mr. Spock probably says in the new Star Trek movie, “fascinating”. Another interesting tidbit was the name of the foreclosed party. If you guessed that name was a marina… you’d be very wrong! These were almost all individuals. Moreover they tended to be bunched together liked grapes to a small number of dockominium marinas. If you guessed wrong, you’d redeem yourself by guessing what state they almost all were in. That’s right, Florida.
Going Rogue
So have you ever thought of what happens when a dockominium owner goes into foreclosure and stops contributing to the marina? This situation is a lot like what I experienced with co-operative apartments in the early 1990’s (the source of my Cooperative Apartment Appraisal book). They stop paying their dockominium fees, real estate taxes and insurance. They decide to let the investment go. Where does that leave the other dockominium owners and the marina? Well, as you might imagine, if enough people fall into this category the agreed-upon dockominium budget for that year is in peril. Typically corner are cut and expenses are reduced where they can be (emphasis on the words “can be”). Still, the result is most likely an additional “special assessment” for existing unit owners. It depends on the amount by which there is a shortfall. A lot depends on the billing policy by the dockominium manager. If fees are collected prior to the beginning of the season for an entire year, this minimizes the potential loss. If billed on a monthly or quarterly basis, not so much. Typically the agreements between the dockominium association and the dockominium owner allows for a 60 or 90 day window for all payments to be made otherwise legal action commences. Depending on how the agreements are structured, local law and court volume, the dockominium could be repossessed in as little as 30 days.
“I Might Steal Your Diamonds… Bring You Back Some Gold”
With the proper deference to Greg Allman, there might be a silver lining to dockominium foreclosure. If the docko owner stops paying the condo fees there’s the possibility that the dockominium association might take title to the slip. That is as long as it isn’t secured by bank loan. I have to admit I haven’t had a need to take a look to see what financing sources there were for dockominiums but it’s likely that very few traditional banks lent on them, if at all. Still, finance companies and others would finance just about anything so I suppose there’s the possibility. Some marinas probably self-financed dockominium purchases too just like car dealers do. In these cases, all I can say to the lender is “good luck”… you’re going to need all you can get to sell it at all in today’s cash-strapped, all-cash environment. But let’s just stick to the typical scenario where the owner used their home equity line of credit. In that case the dockominium association might make out pretty well. They are not in the business of investing in dockominiums, yet if they got hold of a one or more docko slips they could try renting them out. Even at a discount they would more than be able to cover the dockominium association fees. Even in a soft market, you can usually fill a slip if it’s rented for a low enough amount.
Where the Rubber Meets the Road
Hmmm… the last couple of paragraphs have gotten me thinking. What if we applied some of the investment techniques I’ve already blogged about to a dockominium investment in today’s market? Let’s find out if these could be profitable investments given the drop in dockominium sale prices. Now you’ve got a good reason to read Part 3.
