We are going to be talking a lot about the subject of association and bank foreclosures in this blog. Unfortunately there is a lot of ground to cover and a lot of misinformation and confusion out there on the topic.
Today, I want to talk about just ONE of the reasons it is important for associations to be aggressive in pursuing their foreclosure actions through to completion and not suspend their efforts once the bank starts theirs.
An HOA client recently inquired about whether or not they should pursue foreclosure on a 4-bedroom house that was more than a year delinquent. We had already liened the owner but the association had been reluctant to move forward with foreclosure since it did not want to own the property.
The delinquent owners were also being foreclosed on by their lender but the important piece of this puzzle is that the owners had hired a lawyer and were fighting the bank's foreclosure. It is usually much easier to stave off a bank foreclosure action than it is an association foreclosure. With a bank foreclosure, the owner can defend against the action if the original promissory note has been lost, if there were RESPA or Truth-in-Lending violations and now, some clever lawyers are even arguing that if a mortgage was converted into a security it rendered the mortgage unenforceable. The media has reported on a case where a man has successfully defended against a bank foreclosure for 5 years now!!
What does this mean to my client who wants to know whether to forge ahead? In their case, the bank's motion for summary judgment was denied. That means there will likely be several more months of fighting. The amount owed to the association with attorney's fees presently is $2,400. If the association forges ahead, the owner will most likely realize that paying $2,400 to stay in a 4-bedroom house for another 6 to 12 months while he battles the bank is a pretty good deal. Where else could you rent a property for that size during that same time period? This owner might very well lose his house to the bank but in the meantime he does not need to lose it to the association for a much lower amount.
This story would be a lot different if the owner in question did not have a lawyer and was not fighting the mortgage foreclosure. However, these are the types of strategies and the types of analysis your association should be discussing with your attorney when deciding whether or not to move forward with your own foreclosure action.