Forclosure - is it about money or fairness?

We have a unit that is a problem child. They are up for foreclosure (again). The thing is that I honestly don't believe that the owner can afford to pay off what is now owed. I am not saying that they didn't put themselves there. But long story short, they have been scheduled for foreclosure a number of times and then made a deal to get right. Then the deals always fall through.

Now if we foreclose we will essentially be righting off what we are owed. I am convinced that we will not recover anything in the deal. To be honest, we can afford to lose the money. (We actually have more money then we should.)

I am torn as it does seem incredibly unfair to let this go on forever. The vast majority of people have paid their dues. So so now I am wondering if I should look at the fairness issue above to cost issue in the next discussion of the topic. I am interested in what others have to say.

The faster you foreclose, the faster you can get a "paying" unit owner back in the property. Right now, the current owner is just racking up losses for the HOA month after month. You know the answer as well as I. Its time to foreclose.

Kirk,
Your title is "is it about money or fairness?" If money did not matter, then you could be kind and forgiving and just let them pay when they could. But how about me? and the others?. Do we deserve to pay the way for this guy and soon, his neighbor and then who knows who else?

The HOA is a business when it comes to money. Your documents state that. No where in those docs will you find "pay as you can" This seems so harsh but it is reality. Your house values have tanked so all of the great equity that you had built up is gone. And now you have to consider paying for others just to maintain the developement in a way to maintain it's valur? I don't think that it is fair to ask that of the good members who pay their way.

So, IMHO, it's all about the money.

As treasurer of a community that's fighting the same battle, I say foreclose. It may be a "lose-lose" situation for everyone, but to me, the fairness issue should apply as much to the homeowners who are paying as this one who's not.

You say they've been scheduled for foreclosure several times and then make a deal to pay, but never do - they're either underestimating what they can pay or are playing you. Or perhaps both. If they can't pay, they need to decide whether they can still afford to live in the community, and if they can't, they may as well bite the bullet and move on.

Nice to know you have oodles of money now(my community should be so lucky!), but who's to say this will continue? What happens down the road if you're faced with two or three, or more homeowners who make deal after deal to pay and never do? Do you want them to say "Well, the board let Mr. Smith off the hook, why not me?"

In a case like this the reason for foreclosing would be to remove them from the property. They need to be kicked out, then replaced by a paying unit owner. No free rides. Every month they stay is another month of dues the entire community will not receive.

SheliaH wrote: "As treasurer of a community that's fighting the same battle, I say foreclose. It may be a "lose-lose" situation for everyone, but to me, the fairness issue should apply as much to the homeowners who are paying as this one who's not. What happens down the road if you're faced with two or three, or more homeowners who make deal after deal to pay and never do? Do you want them to say "Well, the board let Mr. Smith off the hook, why not me?"

Speaking of fairness, how fair is it to the members who have to pay the attorney fees, collection costs, court fees, etc when this member doesn't have the money to pay his debt? You can't squeeze blood from a turnip, even to just make a point! Each delinquent account must be looked at objectively. If it's apparant one member who is in foreclosure with the bank doesn't have the money to pay the HOA, then it's time to write that one off. Accounts that are not in forclosure by the bank can be foreclosed by the HOA. Each month my board has these decisions to make. Some accounts are written off as bad debts, others are foreclosed on. We've never had a complaint from a delinquent member that Joe Blow's account was written off, why can't theirs be too. IMO, that's not something the BOD should even worry about when making their decision. BTW, how does a member even know who's account has been written off???

Well, it is a long story, no doubt of that. But to me, there has to be a trigger that sets off this lien process by the association. I would imagine you all are past that.
I don't see it as anything other the the Boards Mandate to protect the association. Granted, the Board has to make decisions and from the sound of it the Board has decided they have no realistic hope of re-couping what they lost and feel it is just a matter of how much more they are forced to lose. Given that conclusion, that is the trigger to foreclose to protect the association. Done deal. As said by many no one likes this forclosure business. The board has to act on information, have they determined they have all the information? Can they help this guy, if they wanted to, could they, should they, all information. From the information as presented they had their decision made for them. Did they get good information......another question, but the die is cast here.

I would suggest the Board consider drafting up a Foreclosure Procedure drawn up by a lawyer. The purpose is not to protect the owners, the procedures would be to protect the association from being sued by someone for not abiding by their fiduciary responsibilities, and how much money you got doesn't fit in the equation.

Sheila,

True, board members are not psychics. If the member doesn't contact the board to ask for a payment plan or more time -- whatever -- the board has no recourse but to do whatever they think is in the best interests of the assn. I do not advocate contacting the member to ask what the problem might be. IMO, it's up to the member to make the first move on that. When you turn over an account to a collection agency I imagine the cost gets tacked on to the members' delinquency; however it's only recouped if the member pays. Correct me if I'm wrong, but I wouldn't be afraid to learn that the assn is paying out more in collection fees than they're getting in return. Then when the account is finally written off the amount is greater than it would have been if not turned over to collections. Bottom line: is it worth the expense? That is what the board needs to determine.

Mary and Sheila,
Like all good conversation, something always gets produced.

Mary asks the question about the cost of collection and maybe raises the issue of should the association even get involved at all. Does this mean then the association should do whatever they can to collect but spend no money trying? Some seem to be saying, "we go by the book." A step like process that leads to spending money to collect. Others seem to indicate they make individual value judgments and decide how hard to push. One bit of information we seem to have no real handle on: Does ANY association ever collect money from a foreclosure sale?

Can we get some input on that? My association had some foreclosure 20 years ago, but that is no help. The number of foreclosures varies greatly from one Regime to the other, is that a factor?

Mary,
All should thank you for this post Mary. You all run a tight ship.
Good guidelines for those in doubt.

As you know we get posts here all the time about associations filing claims after certain time frames have past and all this following the By-laws and getting attorneys or filing private and all the attempts to try and recover money owed for assessments. Throw in the problem of an owner being delinquent with a renter in place and and in some cases the procedures outlined in the by-laws. Taking all that into consideration, do you conclude each and every case must be handled differently? Of course if you do that you are going to win some and lose some, be over fair to some and unfair to others. How about your thought on how to get money from a member that is not in foreclosure? Your covering the bad debt with a line item is something that has to be done and do you compensate by raising the assessment fees to get you back to normal.

I'm looking for what about all this mess makes sense? To you personally. How binding are these collection steps that appear in some by-laws and not in others.

I like to see how you work this out inside your head.

Thanks for all the replies so far. This is something that I have struggled with and it is sometimes hard to separate emotion from logic. It would be easier if they didn't live on my street.

But to be honest, I am not sure that the whole thing has not been setup for failure. The thing is that I have been in a place where it was out of sight, out of mind and to be honest, I have failed to pay something purely because of a lack of a bill. So I will leave that something like this could be happening here.

Our management company charges $15 for each additional bill beyond the annual bill. (This is a hard cost.) And while a receipt might be sent, I don't believe they have sent anything that would remind the owner to pay this monthly agreement. Thus they pay and then forget. (And then again it could be they do this on purpose.)

The personal portion is that they have a ton of cars in the street all weekend every weekend. I can't say that I think something illegal is going on. But it is just annoying being every weekend (and sometimes during the week too).

No, it is not about us hurting for money. Last year we spent only 2/3 of the paid dues. Further, we have about two year's worth of what we collect in the bank in addition to the reserve fund which three years ago was at 3000% funding. (Yes, I have the figure correct. We had more in the account then was projected to be spent for the next 30 years and we have put a little more each year. The rest has gone into a non-restricted investment account which is now at nearly twice our annual collection.)

The board is now looking to invest back into the neighborhood. We are going to see if we can put in nice looking street signs and add to the number of street lights. The level of dues is not an issue with most people though they want to see something more tangible for the money. (Dues are $200 a year.)

Anyway, I have also spoken with a new board member and he is inclined that we may need to think outside our previous box. Perhaps we will try ensuring that they have a monthly reminder of their promise to pay off. (Unfortunately the developer had run up the collection costs tremendously and we inherited this one. The developer's style was to cause the $200 bill to rocket to nearly $500 in four months and nearly $1500 by nine months time.)

Have you considered having legal file for a money judgment? That way if you know they have jobs you can garnish wages not to mentin oif they are upside down on the mortgage and try to re-fi 10 to 1 the bank would require that this judgment was paid prior to or in connection with funding.

Here is another outside of the box option that we have used as well. Send a notice to the mortgage holder advising of the delinquency and intent to foreclose the property and asking for a payoff amount for the mortgage. In some cases the mortgage holder will then put pressure on the owner to pay or will pay themselves to protect their interest. but be aware that they may take the next step to further protect their interest by beginning their own foreclosure if the owner is delinquent at all with the mortgage.

Be sure you already have a continuing lien filed against the property.

while each account does need to be looked at individually there also has to be consistency of decision making that is where the collection policy comes in and should be followed. It is never an easy decision to pursue legal collections but it is a business and must be run like a business regardless if the association has funds in the bank now.

Another option is to go with the payment plan again but only with the st up of ACH (where the associatin drafts their bank account for the payment each month) along with a court filed stipulation to the payment plan. More teeth and easier to enforce but only logical if the board really beleives that the owner can afford to pay the amount agreed to.

You sue them in small claims court. When you win, the court awards you a judgment, and based on their ability to pay they might set up a payment plan. Could be a lump sum, garnished wages, etc....

Steve,

I don't believe garnishing wages would be set up with the initial judgment, but only if they fail to pay after a default judgment. I believe a Debtor's Exam (a separate court action) must be held b/4 wages can be garnished. At least this is the process in AZ; other states may do things differently.