An association client recently called two days before the foreclosure sale at which it was to take title to a property that had been delinquent for almost two years to request that the sale be canceled! Huh?
The association had not actually entered the property (this is an HOA not a condominium) but had been told that the owner had removed all the appliances and had left the property in terrible condition before leaving the State. The association was understandably reluctant about taking title to a property in woeful condition. To make matters worse, the lender must have shared those trepidations because it had dismissed its foreclosure action without prejudice (meaning they can refile again in the future) just a few weeks earlier.
What does all this mean for this association?
• The property has been abandoned and is in terrible condition.
• The bank isn’t likely to take title to the property for months or years.
• The association was at the finish line but, if its sale is canceled, they will be back at the starting gate.
This association does have a few options. If it takes title to the property, it does so subject to the outstanding mortgage. The association is not obligated to pay that mortgage but eventually the bank will take title to the property back. Since this particular lender has only recently dismissed its foreclosure action, that is not likely to happen anytime soon. In the interim, if the association takes title to the property it can either do a short sale or start renting out the property. The other option is for the association to go to court to seek a “reverse foreclosure” to force the bank to take title back to the property. The last option is risky: it will cost money to go back to court and there is no assurance of a successful outcome.
The manager advised that rentals in the community for a similar size property usually fall in the $1,500 per month range. If that is the case, the association might want to invest the equivalent of 2 months’ rent to replace the appliances in the home with scratch and dent models or other bargain appliances. Some communities with similar situations advise that certain renters are willing to purchase their own appliances if they can rent out the home for 50% or more below market value. In this case, even renting the property out for less than $800.00 a month would be better than letting it sit fallow for months or years to come.
Since the bank only just dismissed its action, chances are the association will be able to rent out the property for a year or longer before the bank gets around to refiling its action. Even after the bank takes title via foreclosure, any tenant in residence at that time is afforded another 3 months’ occupancy under a federal law known as the Protected Tenants at Foreclosure Act.
In this case, this association might not have really looked at the practicalities involved with moving back to the starting gate when the finish line is within reach.