Go Ahead, Foreclose Already!
A firm client has three open delinquent assessment collection matters with our affiliate Association Lien Services. A new board of directors was elected, and despite the significant success that Association Lien Services has had collecting this condo association’s delinquent assessments in the past, the new board of directors was reluctant to proceed with foreclosure on these three files. They thought the association, by foreclosure, could become the owner of these properties if no one bids on them and then would not only become the landlord, but would also have an obligation to pay the bank on its loan, among other expenses of the property. They asked to meet with me.
I met with them, and we discussed their options. I have had many similar phone conferences and meetings over the last three years. This board agreed that with respect to each of the three homeowners, they did not think there was ever going to be a way to collect money from them as, among other things, they knew these owners were not working people.
I also advised the board that if they proceeded with a lawsuit to get a money judgment against these homeowners, that would not eliminate the problem. Yes, they would have a judgment that they could try to collect on. But the homeowner would remain a homeowner, and these three homeowners are not paying and have not paid assessments for quite some time. So getting a money judgment is not going to resolve the Association’s problems even if they were collectible.
The board and I discussed the fact that foreclosure is not optimal and was certainly not the association’s objective. But as we reported in the past here and here, there are many times when a condo association has to (or at least should) foreclose because the senior lenders are not, and the homeowners are taking advantage of the association by remaining in their unit or home without paying assessments.
It took some doing convincing the board that their association would not become obligated on the senior encumbrances or liens on the property. Each of these properties had a first and a second trust deed. The homeowner got an original loan, and took out some equity from the property when the properties were worth more (back in 2007). I explained to the board that because the association did not enter into the loan agreements, the association could not be held directly responsible for these loans. And the board understood that because these senior liens have priority over the association’s lien, when and if they foreclose, they will essentially wipe out the association’s junior lien. But as I discussed with the board of directors, another reason to foreclose on the delinquent homeowner is that it may motivate a senior lender to proceed with their foreclosure.
While no board member really wants to foreclose on another owner, sometimes the foreclosure is the best option. So, go ahead and foreclose already.
David C. Swedelson can be contacted via email at: firstname.lastname@example.org