Association Foreclosures Are Obsolete
Association Foreclosures Are Obsolete
The Foreclosure Process and How HOAs Recover Money
In a condo or HOA the normal method to collect delinquent maintenance fees is to send an owner to the attorney. The attorney will then move the process through the courts. This means foreclosure for delinquent maintenance fees. The object is to foreclose and take “intervening title” on properties.
It’s “intervening title” because in most cases the unit still has a mortgage. Soon enough the lender is coming for their collateral. The association can hold title but they cannot sell the unit as it may have a debt attached to it. With luck the association can get this title without too much expense and rent out the unit. That is the only way the association can recover money if somebody does not bid the unit when it goes for sale.
The association foreclosure worked in the past but now it is becoming obsolete.
The rental revenue may cover losses for maintenance fees. It may also cover the rehabilitation of the unit, commissions and marketing of the unit to a renter. There are also the legal costs & fees that the association spent to get the title.
With luck the association can hold on to this unit long enough to recover their money. Its a hard way to recover delinquent maintenance fees. It is also an obsolete maneuver to foreclose to recover money.
This is how it has always been, especially during the real estate meltdown of the last decade. Now, the times they are a changing.
New Law Proposed in FL Removes Ability for Associations to Collect Rents
In Florida, an amendment to Florida Statute § 697.07 has been proposed. This new law will entitle banks to step in and take those rents. In essence this completely neutralizes the benefit of foreclosure for community associations.
Delinquent maintenance fees, legal costs, late fees, late interest will remain a loss. Only the lender will benefit when an association forecloses. In other words there will be no good reason for a community association to foreclose on a unit. They will not be able to monetize it should they prevail in court.
These are not isolated events but a trend. Banks may be slow learners but they will always make decisions that will benefit their bottom line in the end.
New Law Proposed in SC Removes Foreclosure as an Option for HOAs
In South Carolina a bill pre-filed this month would prohibit HOAs from foreclosing at all. This bill would strip this power from associations. “Real property used as a primary residence may not be sold if the action was instituted by a homeowners association attempting to collect unpaid dues, fee, or fines”, the proposed bill states.
These are not isolated events but a trend. Banks may be slow learners but they will always make decisions that will benefit their bottom line in the end.
Association foreclosures are likely to become less common nationwide. This is a good thing! Community associations and their attorneys have long abused this power. Small debts get inflated with legal fees, and the case gets moved to foreclosure. Ultimately this does little to benefit the association.
Eliminating foreclosures will limit community association’s power to collect delinquent assessments. Fortunately, there are other alternatives to recovering delinquent maintenance fees.
The Real Estate Meltdown is Over, But We’re Acting Like It’s Still Going On
People are fallible and don’t always manage their financial affairs well. Such people need a wake up call, NOT their home confiscated.
In 2009, during the height of the real estate meltdown, many properties did not have equity. Originally purchased by “Flippers and investors,” many were simply abandoned. Banks were stalling foreclosure and these properties were sitting there rotting. In those times it made good sense for the association to rush to the courthouse and foreclose on delinquent units.
Today most homes have equity and are appreciating in value. It’s unlikely the current owners would let the property be taken from them if they can avoid it. If equity outweighs the debt it would be foolish to lose a property. Most units delinquent in their maintenance payments will pay without legal intervention.
A Viable Alternative to Foreclosure Is Available for Smart Community Associations
Eliminating foreclosures will limit community association’s power to collect delinquent assessments. Fortunately, there are other alternatives to recovering delinquent maintenance fees.
Retaining a collection agency that specializes in community association debt is becoming an increasingly popular option.
Many collection agencies work on a contingency basis, while Lawyers get paid regardless of the outcome of the cases they take. This means collection agencies are much more motivated to seek a timely resolution.
Less Negative Impact on Community Members
Strategies employed by debt collectors have a much lower impact on your community. With a strategy of engagement and education, these agencies are looking to resolve issues and improve communications within the community. This is done with the use of proper notifications, outbound calls, credit bureau reporting, letters sent to mortgage holders, placing of liens, and other techniques.
Frankly, association foreclosure on delinquent owners is obsolete. Even without the change in the laws this method to collect on delinquencies needs to be reconsidered.
It’s time for management companies and boards of directors to think how the future collects and engage specialized collection companies to collect delinquent condo and HOA debts.
Tags: Condo and HOA Collections, Members Articles
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