Monday, September 12, 2011

4th DCA decision makes waiting for the banks to foreclose an even longer proposition for associations!

Most associations these days have stopped waiting for the banks to foreclose and have started proceeding with their own foreclosures against non-paying owners even though the association is the junior lienholder in most cases. Those associations that heeded this advice years ago have managed to recoup significant amounts around the State in past due amounts owed to the community by renting out those properties until the banks finally completed their own foreclosure actions.

Often we hear that the banks “don’t want to foreclose” because they don’t want these properties in their inventory, they don’t want to pay to rehab them or they don’t want to be stuck paying association assessments until they can unload the properties. All of that may be true but far too often, banks aren’t foreclosing, or their foreclosures are being delayed, due to technical improprieties.

Many months ago we first heard of the “robo signing scandal” wherein bank employees with little to no experience in handling foreclosure cases were preparing and filing massive amounts of foreclosure documentation, often improperly. In a 4th DCA decision last week, this issue has reared its head once again. The 4th DCA reversed, in part, a 2010 Palm Beach County Circuit Court that had granted a summary judgment in favor of LaSalle Bank against homeowners, Gary and Anita Glarum in the amount of $422,677.00.

Why did the 4th DCA overturn the foreclosure judgment in favor of the bank? Quite simply because the $422,677.00 amount was based on an affidavit of indebtedness signed by a loan servicer employee who had no personal knowledge that a debt in this amount was in fact owed to LaSalle Bank. Instead, the employee pulled the amount from a computer which the Appellate Court said amounted to “hearsay”. The bank employee did not know who put that figure into the bank’s computer system, how it was calculated or when the data was inputted into the system. However, LaSalle relied upon that Affidavit to obtain its summary foreclosure judgment which the Appellate Court ruled was improper.

This home has been in foreclosure since 2008 and the borrowers continue to reside there. Where does the story go from here? Presumably the owners will not live there forever without having to pay their mortgage but the bank will now have to attempt another summary judgment or start over, all of which means a lot more time invested in the process. Imagine if the Glarums’ home was located within a condominium or homeowners’ association. Imagine the board thinking that the bank’s foreclosure was imminent and waiting. Of course, we know now that the association would have been waiting 3 1/2 years up to this point with the prospect of waiting for months or even years to come based on this recent legal loss for the bank.

Frankly, association foreclosures do not have the same inherent hurdles as bank foreclosures. Association members have fewer holes to poke in an association foreclosure. Delinquent association members cannot derail an association foreclosure because a director was improperly elected or the pool is not well maintained. The only defense to an association foreclosure is that the debt is not owed. If the association member can provide proof of payment, he or she can halt the association foreclosure.

If your board is not having a frank discussion with your association attorney or collection agency about strategies that make sense in today’s environment, what are you waiting for?

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