Friday, April 29, 2011

Community Association Lien Foreclosure Cases-Equity Stripping?

During these difficult economic times, many community associations, including condominium and homeowners’ associations, are facing assessment delinquencies on an unprecedented scale.

In years past, it did not make sense for homeowners to lose $30,000, $40,000 or even $100,000 of home equity for a relatively small community association bill of $3,000, $5,000, or even $10,000. Indeed, home equity was the driving force behind the resolution of a vast amount of community association lien foreclosure cases.

Unfortunately, that is no longer the case.

While certainly a significant number of homeowners are plugging along paying their mortgage obligations, as well as their community association assessments as if nothing has happened, most if not all of these homeowners have lost 40 – 50% of their home equity, and a significant number are “upside down” completely where the fair market value of their homes are worth far less than what is owed to the mortgage holders let alone the community associations which govern their respective neighborhoods.

Some have suggested that community associations are moving ahead of the mortgage holders with their community association lien foreclosure actions thereby stripping what little equity is left in these properties.

Certainly, one can never speak in absolutes, but it would be easier to find 60 degree Fahrenheit temperatures in South Florida in August, than it would be to find a case where a community association obtained title to a home with $600,000 of equity on a $10,000 community association lien foreclosure case.

Indeed, the only pool of money left for many community associations to survive on is the rental income they derive from properties they acquire through their lien foreclosure cases.

In the overwhelming majority of the cases, the associations take title to properties with mortgage debts far in excess of the fair market value of the properties. The associations make valiant efforts to rent these properties for as long as possible until they inevitably lose title to the mortgage holders through their own foreclosure actions.

This is a meager existence for many community associations who often find the properties stripped of all appliances, door and cabinet knobs, faucets, decorative moldings, and the like. All too often, the costs of making these properties habitable far exceeds the rental monies the associations can expect to recover in the short window of opportunity before the mortgage holders re-takes the properties.

Homeowners who are trying to work out mortgage modifications can avoid the loss of their title to these community associations simply by asking for a payment plan while the modifications are being worked out. After all, it is far easier for a community association to pursue a foreclosure action against a delinquent owner than it is for a lender to do so. Associations do not have to contend with lost promissory notes, Truth in Lending or RESPA violations or any of the myriad attacks you can launch agaist a lender's foreclosure. Delinquent owners need to be educated on this fact and realize that they could very well lose their home to their association while fighting their lender's foreclosure or attempting a mortgage modification.

Moreover, Judges who oversee these foreclosure matters go out of their way to make every reasonable, and in some instances, unreasonable accommodations for any homeowner who makes even a cursory attempt to save their home. More often than not, these good faith efforts by the Courts are abused by homeowners who seek to remain in their homes free of any payments to their mortgage holders or associations while they “milk the system” for as much time as they can possible muster.

The system is ripe for abuse by those trying to avoid the payment of their obligations more so than it is for creditors seeking to score windfalls on home equity which is virtually non-existent.

Those brave few who make good faith efforts to work out plans with the mortgage holders often find community associations eager to help.

Given the current state of the housing market, community associations would be well advised to educate their community members on these issues and to keep paying members in their communities whenever possible by means of a reasonable payment plan.

This work by Donna DiMaggio Berger, Esq. is licensed under a Creative Commons Attribution-NoDerivs 3.0 Generic License.

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