Foreclosures

To all,
Below is a censored copy of a letter I wrote to our BOD of our condo.

It makes sense to me all BOD face this problem proactively. The could be, I don't know, but some may find it reassuring to send a letter something like this to their BOD's.

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I know we have a section in our covenants that address liens on property. I am just wondering how tight we can legally push it. From all indications this foreclosure thing is not going away for a while and that probably means there are going to be more folks involved from more effluent owners.
As you probably know Florida is full of Forclosures, as are a lot of other states, and I suspect all states. In SC we are not getting the Press some states are, at least not this area, although the paper is full of them locally. I have no sense of what proportion around here involve condos, but again, it seems to be significant numbers. Are other condos in SC making changes because of this problem, I don't know, but it sure would be worth asking our lawyer what his read is on all this. All it would take is a phone call. Since he wrote our covenants originally and we have not changed that particular section dealing with liens from non payment of assessments because of foreclosure, it may be helpful to find out.

I do know there seems to be significant problems with foreclosure procedures in HOA's because of enforcement restrictions as written by old covenants......whole new ball game and lots of places in Florida are in trouble because the remaining owners have to cough up lots of dough to keep association viable.

Robert,

I take it you are talking about bank or mortgage co generated foreclosures. But,what do you want your assn to do? IMO, there's really isn't much the assn can do except insert a line item into the budget for "bad debts". I just read an article published in a local newspaper, written by an HOA attorney which says:

1) If the holder of a first deed of trust forecloses the assn's automatic assessment lien is wiped out. The purchaser is not resp. for any past due assessments. However they do have the obligation to pay assessments moving forward. If they don't then the assn can take steps to foreclose IAW state law.

2) If the holder of a second deed of trust forecloses the purchaser at the trustee's sale takes ownership subject to the assn automatic assessment lien. The new owner must pay all delinquent assessments, late fees, collection costs, etc. The new owner is also resp. for paying assessments moving forward. If the new owner does not pay up, then the assn can pursue a foreclosure for the entire delinquency.

The prudent board will know what all the laws are applying to foreclosures and will act accordingly. Our PM is very saavy and keeps on top of all the foreclosures in our assn. She regularly calls the banks and mort co's to find out what the status is on all properties being foreclosed upon. We have only a 2% avg -- our City is around 10%.

To be honest, Robert, I have no idea what you are asking your board, either.

What exactly is it you want the lawyer to do?

I'm sure most, if not all, assn declarations contain an article on "enforcement" outlining the remendies which can be taken to collect delinquencies. If your assn has not been following the procedure as outlined in your declaration, IMO, it's time they started. However, at this point in time it may be harder than ever to collect those delinquencies. On the other hand, I doubt the declaration addresses bank and mortgage co foreclosures. This is an area where the board needs to go out on their own and gather info so they know exactly what happens when a delinquent member's home is being forclosed by the bank or mortgage co. Seeking advice from your attorney sounds like a good idea. As I mentioned earlier, setting up a "bad debt" line item in your budget it another very good idea.

Regarding your letter, IMO, you need to come to the point. In your letter you give some background info regarding the foreclosure problem but you don't state specifically what you want the board to do. I would suggest leaving some of the background info out and get right to the point. State clearly what you want them to do or think they should be doing. For ex: "I would like to suggest that the board become aware of the process involved when a member's home is being foreclosed by a bank or mortgage company. In many instances the HOA is unable to collect the delinquent assessments. Therefore, I would also recommend including a "bad debt" line item into next year's budget. This would allow us to write-off uncollectible delinquencies."

Ohio changed the law for COA's in 2004 moving our lien higher on the food chain and giving COA's the ability to charge a reasonable rent to someone in either a bank or COA foreclosure.

5311.18 Lien for common expenses.

(A)(1) Unless otherwise provided by the declaration or the bylaws, the unit owners association has a lien upon the estate or interest of the owner in any unit and the appurtenant undivided interest in the common elements for the payment of any of the following expenses that are chargeable against the unit and that remain unpaid for ten days after any portion has become due and payable :

(a) The portion of the common expenses chargeable against the unit;

(b) Interest, administrative late fees, enforcement assessments, and collection costs, attorney’s fees, and paralegal fees the association incurs if authorized by the declaration, the bylaws, or the rules of the unit owners association and if chargeable against the unit.

(2) Unless otherwise provided by the declaration, the bylaws, or the rules of the unit owners association, the association shall credit payments made by a unit owner for the expenses described in divisions (A)(1)(a) and (b) of this section in the following order of priority:

(a) First, to interest owed to the association;

(b) Second, to administrative late fees owed to the association;

(c) Third, to collection costs, attorney’s fees, and paralegal fees incurred by the association;

(d) Fourth, to the principal amounts the unit owner owes to the association for the common expenses or penalty assessments chargeable against the unit.

(3) The lien described in division (A)(1) of this section is effective on the date that a certificate of lien in the form described in division (A)(3) of this section is filed for record in the office of the recorder of the county or counties in which the condominium property is situated pursuant to an authorization given by the board of directors of the unit owners association. The certificate shall contain a description of the unit, the name of the record owner of the unit, and the amount of the unpaid portion of the common expenses and, subject to subsequent adjustments, any unpaid interest, administrative late fees, enforcement assessments, collection costs, attorney’s fees, and paralegal fees. The certificate shall be subscribed by the president or other designated representative of the association.

(4) The lien described in division (A)(1) of this section is valid for a period of five years from the date of filing, unless it is sooner released or satisfied in the same manner provided by law for the release and satisfaction of mortgages on real property or unless it is discharged by the final judgment or order of a court in an action brought to discharge the lien as provided in division (C) of this section.

(B)(1) The lien described in division (A)(1) of this section is prior to any lien or encumbrance subsequently arising or created except liens for real estate taxes and assessments of political subdivisions and liens of first mortgages that have been filed for record and may be foreclosed in the same manner as a mortgage on real property in an action brought on behalf of the unit owners association by the president or other chief officer of the association pursuant to authority given to that individual by the board of directors.

(2) In a foreclosure action a unit owners association commences pursuant to division (B)(1) of this section or a foreclosure action the holder of a first mortgage or other lien on a unit commences, the owner of the unit, as the defendant in the action, shall be required to pay a reasonable rental for the unit during the pendency of the action . The unit owners association or the holder of the lien is entitled to the appointment of a receiver to collect the rental. Each rental payment a receiver collects during the pendency of the foreclosure action shall be applied first to the payment of the portion of the common expenses chargeable to the unit during the foreclosure action.

(3) In a foreclosure action the holder of a lien on a unit commences, the holder of that lien shall name the unit owners association as a defendant in the action.

(4) Unless prohibited by the declaration or the bylaws, following a foreclosure action a unit owners association commences pursuant to division (B)(1) of this section or a foreclosure action the holder of a lien on a unit commences, the association or its agent duly authorized by action of the board of directors, is entitled to become a purchaser at the foreclosure sale.

(5) A mortgage on a unit may contain a provision that secures the mortgagee’s advances for the payment of the portion of the common expenses chargeable against the unit upon which the mortgagee holds the mortgage.

(6) In any foreclosure action, it is not a defense, set off, counterclaim, or crossclaim that the unit owners association has failed to provide the unit owner with any service, goods, work, or material, or failed in any other duty.

(C) A unit owner who believes that the portion of the common expenses chargeable to the unit, for which the unit owners association files a certificate of lien pursuant to division (A) of this section, has been improperly charged may commence an action for the discharge of the lien in the court of common pleas of the county in which all or a part of the condominium property is situated. In the action, if it is finally determined that the portion of the common expenses was improperly charged to the unit owner or the unit, the court shall enter an order that it determines to be just, which may provide for a discharge of record of all or a portion of the lien.

Effective Date: 07-20-2004

Glen just gave you a bunch of good stuff and theat echos my thoughts only more better.

Patti,
I agree.
My impression is this funtion can easily be left up to the Manager or Mangement Team. It is a Board function and the Board should do as the Covenants command. Our covenants list a step by step procedure. In the past this was not always followed and I will not go into to details, as it does not matter, buit suffice to say is the Board left this kind of process up to the best intentions of the manager..............and that IS a common fault in tons of HOA's especially with high absentee ownership.