The Association Has Foreclosed on its Lien – Now What?

By the Community Association Attorneys at SwedelsonGottlieb
So the board has done its due diligence, investigated its options and decided that chasing down the owner who has not paid their assessments for many months is likely to be a waste of time, money and association resources. The board has considered the options and opted to complete the non-judicial foreclosure process with the actual foreclosure sale on its lien. (See our prior article entitled, “To Foreclose or Not to Foreclose, That Seems to be the Question”) Because the senior lien or lien/trust deed securing the original purchase loan for the property is in an amount that exceeds the current (2010) depressed value of the property, no third party bid at the foreclosure sale and the association ended up with the property (unit/lot) after the 90-day redemption period.

Assuming that the ninety (90) day redemption period has ended (see our previous post on the homeowner’s right of redemption) and the trustee’s deed upon sale has been issued and recorded, the association is now the owner of the unit, lot/home (subject to the senior encumbrances). The board has lots of questions. We’ve got answers.

First, the association is not directly responsible for the senior liens and encumbrances (bank loans, etc.,) that are secured on the property. As the association did not enter into those loan agreements, the default on those loans does not negatively impact the association’s creditworthiness.

However, if the association does not pay the payments or amounts owed on the loan(s), it is only a matter of time before the senior liens, most often a bank or lender that owns the loan, will itself foreclose on its lien and take title to the property, something the Board wants to occur, so there is an assessment-paying owner taking title to the property.

As the new owner of the property, the association can evaluate its ownership options. The association can contact the senior lien holder and attempt to negotiate a new loan agreement if it wants to keep the unit for a manager or rental, or it could attempt to sell the property and negotiate a short sale. The association can collect rent from the existing tenant that is renting the unit or home, or it can place a tenant in the property on a month-to-month rental contract.

The association can do any one of a number of things that an owner would and could do if they themselves were facing foreclosure. Or, the association could do nothing and allow the property to be foreclosed on by the senior lien/lender. The association will benefit from a new owner taking title to the property who will begin to pay the assessments from the date of the sale forward.

If the property is still occupied by the original owner, that original owner now becomes the association’s tenant. The association can negotiate with the former owner/tenant to pay the reasonable rent for the property and the association can continue to collect rent until the property has been foreclosed on by the senior lender.

If the property is occupied by a tenant who is not the former owner, the association would be able to step in as the new landlord and negotiate a deal with the tenant. If the association’s “tenant” does not pay rent, the association could then pursue an unlawful detainer/eviction.

And no, the association cannot now sue the former owner for the unpaid assessments and the costs and fees that the association incurred. Under what is called the “Single Action Rule” (see our previous post that discusses this rule), the association had one option and that was to either complete the foreclosure or sue and obtain a monetary judgment. As you have already decided that pursing this former owner is not likely going to be a productive use of association resources, you now know that the single action rule precludes any judicial action for a personal judgment.

What else should the association be doing as the new owner of the property? The association should be treating the property as it would expect any owner to treat their property at the association. The association should check with its insurance broker to determine whether the association’s common area insurance coverage also covers the unit and/or if additional insurance coverage is required or recommended. The association does not want the additional exposure of a tenant being injured inside a unit, claiming that injuries were caused by tripping on torn carpet or some other problem within the unit itself.

If the unit is occupied by a tenant, the association, as a landlord, should request the right to inspect the interior of the unit to make sure that there are no obvious problems, such as plumbing leaks which could negatively effect the Association or other units, etc.

While the association does not have to pay the assessments that are owed on that unit or property, the board needs to recognize that the annual budget it created was based on assessments being collected from all units or lots. Therefore, it has to also recognize that it is going to have a reduction in its income that will need to be funded from another source. If the association is collecting rent, then it should be funding assessments so that the association is able to pay all of its expenses.

As you can see, the association does have some options, and it is possible that it will recover monies from this unit to pay off the deficit that was created in the budget because of the former owner’s non-payment of their assessments.

If you have any questions, want practical assistance in determining your best options, contact David Swedelson or Sandra Gottlieb at (310) 207-2207. Their respective email addresses are: or

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