Thursday, March 18, 2010

Reverse Foreclosures: Practical New Association Weapon or Marketing Ploy?

The recent news regarding the benefits of a Reverse Foreclosure can be misleading unless an association carefully weighs what steps are necessary in order to argue that a Judge should require a bank to take title to a property. In order to proceed with a Reverse Foreclosure, an Association must initiate a foreclosure action and successfully acquire title to a delinquent owner’s unit or home. Once the Association acquires title, if there is a pending lender foreclosure (this is a key point, you can’t force the bank to initiate a foreclosure), the Association in what has become known as a reverse foreclosure, may attempt to file a Motion requesting the Judge to require that the lender take title to the unit or home.

This begs the question that if the Association has already fought a long battle to acquire title to a unit or home, why spend additional money on attorney’s fees and costs to head back into to court to force a bank to take title? The Association has already gone through the foreclosure process, which resulted in the acquisition of title. At that point, the Association is usually better off trying to recoup the costs of the foreclosure and past due assessments by renting out the property. It is no surprise that banks today are in no rush to foreclose on delinquent owners, so renting out the property presents an opportunity to bring the account current and perhaps, after time, even make a profit. Rest assured that the bank will eventually get around to taking title back to the property but in the interim, the association can control it and rent it out.

In certain circumstances, renting out the property may not be feasible given the property’s condition; one must still keep in mind that attempting a reverse foreclosure is not a guarantee that a judge will actually grant this order. While a judge in Miami-Dade has recently approved such a measure, other judges may not and, in addition, to the past due assessments that are still owed on the property, the association may wind up owing attorney’s fees and costs on an unsuccessful Reverse Foreclosure motion.

A reverse foreclosure attempts to provide a solution when a simpler avenue might be available to hasten the bank’s acquisition of title. If there is a pending lender foreclosure that has been drawn out, the Association, as a Defendant, may attempt to hasten the bank’s acquisition of title by filing a Notice of Trial, which will force the case to judgment, and often leads to the mortgage holder taking title. This can be done during the lender’s foreclosure and does not require the association taking title itself via foreclosure.

The moral of the Reverse Foreclosure story? Every potential avenue for relief for struggling associations should be discussed thoroughly with your association’s attorney but bear in mind that some of what is being written bears little practical benefit for most associations but makes for a good story!!

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