Wednesday, January 13, 2010

Waiting for the bank to foreclose is not a viable option!

I often am asked to attend townhall and community meetings to discuss a variety of topics of interest to people living in common interest ownership communities. I recently attended one of the Broward Coalition's meetings where Broward County Chief Judge Victor Tobin was a member of our panel discussing the current mortgage foreclosure crisis and its impact on common interest ownership communities.

A member of the audience stood up and informed me that his association had started lien collection proceedings against a delinquent owner only to stop when the owner started fighting his lender's foreclosure efforts. Not surprisingly, the owner's attempts to work out a mortgage modification were not successful and the board member wanted to know what the association should do now that the owner was more than one year past due in his assessments.

My response was that had the association aggressively pursued their foreclosure action, it would have been at the finish line by now and not back at the starting gate. A lender filing a foreclosure action today provides absolutely no indication that the bank will actually pursue its foreclosure through to completion in a timely manner. Associations who wait around for a bank to take title to property in their community might be waiting forever.

Since a lender's liability is capped for past due assessments (6 months currently for condominiums and 12 months for HOA's) a lender can take years to foreclose, safely knowing the extent of their past due liability all the while having their collateral maintained by the rest of the paying association members. However, if that same lender proceeds to take title via foreclosure, they not only have to pay the statutory cap on past due assessments but they also have to start paying for all regular and special assessments from that point forward. Combine the fact that it's not easy to move these properties these days with the reality that lender's fees to file foreclosure actions were increased over 300% from last year and you should be able to easily understand why bank foreclosures are taking forever.

The age-old advice that you can't control what others do, only what you do holds very true in today's association foreclosure arena. Associations that proceed with their foreclosures are finding that they accomplish several important goals: (a) they have control over the property as record title owners and can keep out squatters, nuisance tenants, etc. (b) they can attempt to recoup amounts owed via renting or selling the property and (c) they are sending a strong message to the rest of the paying members that they are doing something and that delinquent owners are not getting a free ride at the rest of the owners' expense.

There are no easy or quick answers to today's complicated collection problems One thing, however, is for certain. Waiting around to see what the banks will or won't do is not a viable option!

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