As naïve as it sounds, foreclosure is business, not personal. There are some fundamental questions that need to be asked to curb the passion and focus the decisions on the economics of business. In truth, the Association does not want the foreclosure but rather what results from it, the sale. So we need both the foreclosure and the sale for the Association to be able to get the money it is owed.
Let’s talk a bit about whether the Association should foreclose. Given the past history of property values the foreclosure decision was simple. The difference in the amount of the market value and mortgaged value left significant excess available to settle the assessments from the foreclosure action at the sale. In the current environment of depressed market values, significant portions of the properties in arrears on assessments also have significant mortgages, putting the Association in a disadvantaged position. The disadvantage is lack of equity to foreclose against; making recovery of assessments a bit more complicated and sometimes even fruitless.
The above has to be balanced against the fact that the assessments are the lifeblood of the community to maintain, beautify, and provide the amenities to the members. All members are required to support the community through the payments of assessments. Non-paying members should not be allowed to draw down the community. Therefore, respect for the paying members must be maintained by utilizing the tools available to enforce payment of delinquent assessments from the non-paying members.
The normal process of collections requires a demand letter, a notification of intent to lien, the lien letter and the lien itself. Once the lien is recorded a Condo has up to a year to foreclose, while the Home Owners Association has 5 years. This provides for a unique position for the Association to work with the Unit Owner and to consider owner payment plan options before spending more money which it may have difficulty recovering. If this fails then the only recourse left is to file a lawsuit to foreclose the lien and ultimately sell the property.
My next series of posts will go into greater detail regarding payment plans and the actual foreclosure process.LienMarket ValueProperty Assessment