First Published The West Florida Wire Community Association Institute Magazine: March 2011
Non-payment of Association Assessments has become a significant burden for many communities. Whether it is a result bank foreclosure, intention or apathy, the situation has affected thousands of communities across the state. There is no vaccine, but there is treatment.
At first blush, taking action against a unit owner that is delinquent or worse, in foreclosure, seems counter-intuitive. Why add to the problem? Why throw good money after bad debt? The weight of these questions can seem insurmountable when the initial delinquency occurs. It is only after an Association experiences a protracted bank foreclosure or repeated promises to pay that go unfulfilled, that the importance of early action in a delinquency becomes evident.
What follows will be a general analysis of the fictional delinquency of Unit A and the benefits of aggressive action.
Unit A has missed its January 2011 assessment and in keeping with the appropriate governing documents and statute, the Association may legally secure a claim of lien against the property. Other than the owner who is months or even year’s delinquent in assessments, why secure a claim of lien against a property that has recently become delinquent? Beyond providing evidence to the world that your Association has an interest in the property, there is now the requirement to satisfy the newly placed encumbrance on the property should the property be transferred or sold. In addition, if Unit A’s owner is still residing in the unit and simply not making payments or the community is beginning to see a trend of delinquent payment, it may be of assistance to indicate the Association’s refusal capitulate in instances of non-payment to the community as a whole.
Generally, the majority of Association’s governing documents provide for the ability to foreclose on a claim of lien against a unit. This “nuclear” option provides the Association governing Unit A the option to pursue a fully fledged foreclosure against the unit, ask the Court to sell Unit A on the Court House steps and eventually take title to the unit in order to rent it out or potentially even be paid in full by a third party purchaser.
Unfortunately, properties are not always held free and clear of a note to a lending entity. Frequently, properties will have a first, second or maybe even a third mortgage encumbering them. Therefore, it is necessary to review the governing documents to determine what mortgages the Association can wipe out and what mortgages can wipe out the Association. The most common circumstance involves a first mortgage which is superior but that is all. This also creates a unique opportunity to bargain with secondary mortgages as to the preservation of their interest by satisfying the Association’s lien.
It is a recurrent misconception that upon taking title to a unit with a first mortgage that an Association needs to begin making payments to the bank in order to avoid becoming personally responsible for the mortgage. This is not the case. Upon taking title to Unit A in the above scenario the Association would be able to rent the Unit while securing only landlord insurance for unforeseeable events. One caveat however, although rare, a bank that is foreclosing may seek to have a receiver appointed to collect the rents paid directly to the Association.
Finally, while on the topic of a foreclosing first mortgage, why would an Association ever begin an Association foreclosure when the bank is already foreclosing? The simple answer is time. Time is a commodity banks squander. The foreclosure process has consistently taken banks eight to fourteen months to conclude. Many foreclosures take considerably longer while some are dismissed only to be reinstituted extending the process for years. It is during this time that a timely filed, aggressive Association foreclosure against Unit A would reap the rewards of a lucrative tenant and a non-aggressive Association would continue to accrue unpaid assessments. As you can see, what at the inception of a bank foreclosure did not make financial cents to the Association can become financial dollars when appropriately aggressive.