The Business Journal reported last night that Summit at Copper Square has had a notice of trustee sale filed against it (i.e., foreclosure) with a trustee sale date of October 14th. The article indicates 74 of 160 condo units have been sold - but after reviewing the assessor's website, it appears 74 have YET to be sold. Presumably the foreclosure action is being taken against only the condominium units that remain unsold - as condo units generally are released from the deed of trust as collateral when sold to an individual purchaser.
The realtor quoted in the article seems surprised that this action was taken, but if he has been following the downtown condo market, this wouldn't come as a shock. First Bank of Nevada (the construction lender on the property) was put into receivership by the FDIC earlier this year. The FDIC then sold the loan to a third party buyer, who presumably wants to protect their interest in the property. With the Phoenix condo market in disarray (read: valuation free fall) and nearly half of the units in Summit unsold, it made sense for them to foreclose on the property. Following foreclosure, the new owner will likely decide whether to rent out the remaining units for the next several years, until the market recovers enough for them to sell the units, or to just do a bulk sale of the units to a third party buyer - who will in all likelihood turn them into rentals as well for the foreseeable future.
Another question surrounding the Summit at Copper Square is resolution of the outstanding mechanics' liens that have been filed against the property - including a notice of intent to foreclose that was recorded by the builder late last year against all of the units (sold and unsold). Generally, a construction lender has priority over mechanics liens in Arizona. With the value of the condominiums dropping so precipitously, it is unlikely the builder will obtain relief in the bank's foreclosure action. But the courts may become involved to sort out priority and to figure out how to handle the mechanics liens against the condo units that have already been sold to individual purchasers.
From the perspective of a current owner of an individual condominium unit in Summit at Copper Square, the foreclosure itself shouldn't have much impact beyond (a) potentially new neighbors who are renters and (b) a new group asserting control over governance of the homeowner's association (presumably the developer still controls the board of directors of the HOA). In these types of cases, often the HOA reserves are underfunded and the developer has not been able to keep up on paying HOA assessments. When the lender takes over unsold condominiums, they will often rectify these deficiencies - particularly if they are going to rent out the property and will have cash flow. A fully-funded HOA could be the silver lining for the current condominium owners.
All eyes must necessarily turn to 44 Monroe, the other downtown Phoenix high rise condominium finished in the last year. Only 8 units out of 202 have sold since they completed the project in fall of 2008. Back in August of 2008, the developer told the Business Journal that they had received deposits on more than half of the condominiums, but to date those deposit haven't translated to sales. It will be interesting to see whether the lender (Corus Bank) forecloses on this property or whether they allow the developer to maintain the property (perhaps as rentals). Corus currently has its own troubles (due to its construction lending) and is rumored to be close to being taken over by federal regulators. Stay tuned on this one...
A quick, but necessary, reminder that the contents of this blog should not be taken as legal advice. Prior to making any legal decisions, a visitor to this blog should consult with a licensed attorney in their state of residency.
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