Have We Stepped Into Deep Doo Doo?

My association has acquired title through foreclosure to a property. The court ordered the property sold on the courthouse steps, the sheriff held an auction, no one placed a bid, so we now have title by virtue of a Sheriff’s Deed. All perfectly legal.

There is a problem: The property had a first deed of trust (mortgage) and by state law the lender’s lien is superior to the association’s lien.

Both divisions of the Arizona Court of Appeals have previously rebuked the attorney who represented our association for trying to foreclose when a lender had a superior lien. In one case, the court ruled that the attorney’s case was frivolous and in the other case that he had perpetrated a fraud upon the court.

Judges in Arizona’s larger counties are appointed after a lengthy selection process designed to weed out unfit candidates. Judges in the rest of the state are elected, with the only qualification being that the candidate must be an attorney. Our association is located in one of those rural counties and our case was heard by one of those elected judges. God only knows what our silver-tongued-devil of a lawyer told the judge to convince him that we could foreclose when the law (and the Court of Appeals) says we cannot.

I know that the lender was named as a defendant in the foreclosure lawsuit. Since I do not have ready access to the case files I do not know if the case is now on appeal, but I have to assume that it is. This case will almost certainly be reversed on appeal and the association will not only loose all that it has spent pursuing the title, but we will likely have to pay the lender’s legal expenses. While I do not know the exact amount of unpaid assessments, it could not have been more than $500. We can easily loose $50,000 on this fiasco.

For the time being, we have deed to a 40-acre parcel with a small home on it. We are trying to sell it but I cannot imagine a realtor willing to sell a property with a contested title nor can I imagine that a buyer will be able to secure title insurance. For our efforts so far we have title to an unsellable property, we have to pay the property taxes, we have to insure the home, and we will receive zero assessment income.

Anyone ever run into a similar problem?

Idiocy.

Our board consists of nine members. Few have any business background and none has any legal background. A few years ago the board felt that there was a serious problem with non-payment of assessments and began a holy war to recover them. In truth, the amounts in arrears were about five percent of our income per year. Anyone who has been in any business knows that no organization ever receives 100 percent of what is owed and a 95% collection rate is pretty damn good.

Our annual income is around $175,000. The president now admits that we have lost over $200,000 in unpaid assessments and attorney fees to collect them over the last 2 years. While no one on the current board will admit how much of that figure is unpaid assessments and how much was spent on attorneys, other financial documents indicate that it was nearly all due to the attorney fees. That is, we spent about $175,000 to collect $25,000 and recovered zero.

The worst part is that the board is unapologetic about its actions and still insists that it has a duty to collect unpaid assessments. The only change is that they went to a different law firm.

I know of no other way to describe this situation except as stupid, stupid, stupid.

There is some circumstantial evidence suggesting that one of the board members was getting a kickback from the first law firm. He was given carte blanche control over the process, was the sole point-of-contact, fought to keep the first law firm when other board members expressed their concerns, and quit mid-meeting when the rest of the board decided to terminate the first law firm. Nothing concrete but his actions sure looked suspicious.