By Deborah Goonan, Independent American Communities
Today’s blog is an update on LM Funding, the controversial company that has been the subject of two class action lawsuits.
While the Tampa Bay Times recently reported that LM Funding has been able to stave off one class action lawsuit, the company still faces a second class action lawsuit by condo associations, claiming deceptive trade practices and charging illegally high interest rates.
Ironically, on its website, LM Funding claims it is a financial services company, neither a law firm nor a debt collector.
However the firm describes itself, to homeowners with delinquent assessments sold to the company by their homeowners or condo association, LM Funding is a relentless debt collector.
WFTC Action 9 News recently interviewed one Winter Park condo owner, Ranya Hamza, who says she lives in fear of losing her home, unable to pay $77,000 demanded by LM Funding. Hamza says that when she purchased her villa home at a foreclosure sale, she was unaware of a $145 assessment lien from the former owner. LM Funding acquired that lien and began pursuing Hamza after she purchased the home.
Action 9 investigates HOA debt collectors
Updated: Jun 27, 2017 – 7:16 PM
A Winter Park woman claims a past-due homeowners association bill for $145 has turned into an astounding demand for $77,000.
Ranya Hamza blames a debt collector that bought old association debts then, she claims, demanded homeowners pay sky-high fees.
Hamza said these are scary times and she fears a debt collector may try to take her home.
Read more (Video):
http://www.wftv.com/news/action-9/action-9-investigates-hoa-debt-collectors/542808934
Why do homeowners and condo associations get involved with companies like LM funding?
The LM Funding sales pitch can seem enticing to naive board members, desperate to get their hands on fast money, so they can begin to pay the association’s past due bills, or to tackle long deferred maintenance.
The company creates the image that their “plan” can save the day. Their animated promotional video highlights two faceless men wearing capes flying through the air – superhero style. Every distressed condo or homeowners association needs a savior, right?
Another marketing strategy of LM Funding is to shamelessly repeat a favorite talking point of industry trade group, Community Associations Institute (CAI) – It is unfair to make the good paying homeowners pick up the slack for the non payers. (See here.)
OK. Let’s talk about how “fair” LM Funding is to homeowners and the associations they purport to serve.
LM Funding’s plan – once they buy up assessment debt from an association – is to relentlessly pursue homeowners, with the goal of maximizing their profit margin. But LM Funding actually hires another law firm to do collections, many of those accounts assigned to an affiliate company (Business Law Group) founded by LM Funding’s CEO Bruce Rodgers.
Cozy arrangement.
The association is funded up front for the safe harbor amount of assessments that would be paid to the association following a lender foreclosure. In Florida, the safe harbor amount is up to 12 months of unpaid assessments or 1% of the value of the property, whichever is less.
It is a bit unclear on the company’s website, but apparently associations are funded by a loan rather than cold, hard cash. By the time an association pays its interest and fees, it might have been better off to wait for lender foreclosure to collect its safe harbor proceeds. In fact, Associations allege in their pending class action lawsuit that LM Funding issued them loans with up to 25% interest, as reported in the Tampa Bay Times.
As accounts are collected, LM Funding gets to keep the interest and late fees. The attorney firm gets reimbursed for its legal fees. The system creates a perverse incentive to charge high interest rates, and to rack up late fees and attorney fees. According to the Action 9 Investigation,
Hamza hired an attorney to fight her bill, which includes dues she’s not allowed to pay until there is a settlement.
That’s how $145 in past due assessments can rapidly grow to $77,000. LM Funding is not accepting partial payments, yet interest and fees continue to accrue.
Is there anything fair about that?
If LM Funding cannot squeeze the money out of the homeowner, no problem. They simply foreclose on the property. Then, depending on the agreement with the association, LM may split the proceeds of the sale, or pay the association its full proceeds, then lease and hold the property for sale at a later date.
A quick glance at LM Fundings Investor page reveals that, at the present time, a good chunk of their revenue is generated by collecting rent payments and selling off some of its REO inventory.
While association-governed communities might benefit from a short-term infusion of cash, the long-term effect of exploiting its financially distressed homeowners pits neighbor against neighbor, and leaves the homeowner caught in a negative collection cycle with even less ability to pay ongoing assessments or special assessments.
Ultimately, foreclosure sales tend to drive down appraised property values in any neighborhood, especially association-governed communities. Investors – including LM Funding – may profit from buying homes at a low price and selling at a higher price. But the association and its individual owners rarely benefit from lower comparable sales and thus, decreasing or stagnating property values.
In the long run, homeowners lose, and association-governed communities lose. But LM Funding and its affiliated companies collected millions in revenue at the height of the real estate foreclosure crisis.
That hardly seems like a fair arrangement.
Today, after wreaking all of this havoc and hardship, LM Funding is operating at a loss, and may soon be out of business. After all, with fewer distressed properties on the market, business is not as brisk as it was a few years ago. Last October, the Tampa Bay Times reported that LM Funding had to cut salaries and lay off many of its staff members.
Chances are, if the class action lawsuit is successful, LM Funding will file for bankruptcy.
That would be another grossly unfair outcome.
But, hey, condo and homeowners associations that fell into the LM Funding trap were able to get their fair share of assessments up front.
It looked too good to be true, and it was.
We hear once and a while that homeowners lose their home for amounts as low as $25, $80, $150 and CAI leads us to believe it is very rare. And yet we have these stories like what has happened to Ranya Hamza and the California guy with the gray tape on his hose that did in fact lose his home–how rare is this really? I would like to see us start a list–do we only hear of a few and there are many more? Or is it indeed rare and we hear about all the people who lose their homes (over minor things) because it is so outrageous?
I remember the law firm (Vial Fotheringham) that gave us the ploy, “it’s unfair to those that pay their dues”. However, the problem is, we never lost the money unless the person went bankrupt because it could not be sold until we were paid. In fact, we made money because interest accrued. There was no loss. So the sales ploy was a farce. When our board hired them, we had around $100,000 in past due debts. One year later we had $144,000 in past debt–and a huge bill for collections. Our HOA actually lost a lot of money because of the deception and a naive board and membership. They had also told us that we would pay little to nothing for their “Assessment Enhancement” program. But the fine print read that if owners lived out of state or the debt was noncollectable that we would have to pay. Due to an inept president who did not understand the contract and apparently could not read the fine print, he turned over everything, even the noncollectable and out of state owners and we lost lost lost. A group of owners fought turning over collections to them, but few owners understood the reality. All they heard was, “Its unfair we have to pay for the deadbeats.” Well, ended up that they did not pay for the deadbeats–they paid for the legal fees and we went more in the rears then ever.
In Utah, lawyers are exempt from the Fair Debt Collections laws. So their unfair practices are not monitored or curbed. Thank you for the article.