Why Community Associations Cannot Afford to Ignore Lender Foreclosure Actions: Part IV

This blog post is part IV in a series of posts discussing why community associations cannot afford to ignore lender foreclosure actions.  The underlying theme of this series is that associations have a financial interest and lien rights in their properties and by ignoring lender foreclosure actions, associations are ignoring their own financial interests and main sources of revenue.  Part I explained that associations have the statutory power to expedite the foreclosure process when lenders are delaying and also illustrated that by implementing a consistent policy for appearing in lender foreclosure actions and expediting the legal proceedings, associations can save tens of thousands of dollars over the years.  Part II addressed the unclaimed revenue in the form of foreclosure sale proceeds that associations fail to capitalize on due to not appearing in lender foreclosure actions.  Part III demonstrated that appearing in lender foreclosure actions allows associations to better determine if the foreclosing entity is entitled to Safe Harbor protection or not.  This fourth post concerns the lender paying its required assessments immediately after the certificate of title is issued and whether it is worth pursuing the prior home owner for the remaining unpaid assessment balance owed.

After the foreclosure sale a certificate of title is issued to the purchaser, making the purchaser the new record title owner of the property.  Many times the foreclosing lender is the purchaser due its judgment credit bid at the foreclosure sale.  As a result, the lender will be issued the certificate of title and is then responsible for all future assessments and related charges from that date forward.

Numerous times our firm has uncovered, after the fact, that because an association ignored the lender foreclosure action, it did not realize the sale had already occurred, the certificate of title had been issued to the bank months prior, and that the bank had failed to pay not only the Safe Harbor amount but also failed to pay the ongoing assessments.  In fact, there are many times associations only realize a foreclosure action is complete, and that banks have owned the foreclosed properties for months, because the banks eventually enter into contracts for selling the properties and request estoppel certificates from the associations.  While demand can be made on the banks for the amounts owed once this is discovered, an association’s budget would be in a much better position if the association knew exactly when the certificate of title was issued and when the bank was to begin making its monthly assessments.

Appearing in foreclosure actions will also allow an association to better determine whether it should pursue the prior home owners for the remaining unpaid assessments after it collects what is owed from the foreclosing lenders.  The Florida Condominium Act and HOA Act both provide that in addition to bringing its own foreclosure action, an association “may also bring an action to recover a money judgment for the unpaid assessments.”  Fla. Stat. § 718.116(6)(a); Fla. Stat. § 720.3085(1)(c).  This additional route to recovery is unknown to many associations and they fail to utilize this option as a means for collecting.

Some associations incorrectly assume that once a lender initiates foreclosure, an association’s only means for recovery is the reduced safe harbor amount and that the remaining balance must be written off and absorbed by the other property owners.  This is incorrect.  As the statutes mentioned above clearly state, associations have the ability to pursue the prior property owners for those unpaid amounts.  For example, if the unpaid assessment balance owed from the prior property owner was $10,000 and the lender only owed $2,000 of that due to Safe Harbor protection, the association could still seek a money judgment from the prior property owner for the remaining $8,000.

Another common scenario that occurs in lender foreclosure actions is when property owners find the resources necessary to cure the mortgage default, resulting in a dismissal of the foreclosure action.  An association that failed to appear in the action would be unaware of this situation if it were to occur.  The association would assume the foreclosure action was ongoing when, in reality, the lender would be paid in full while the association still had unpaid assessments owed to it.  This scenario would be the ideal situation for an association to bring its own action for a money judgment, or possibly its own foreclosure action.  However, an association must appear in the lender foreclosure action to have timely notice of these circumstances.

In summary, appearing in the lender foreclosure action will allow an association to determine when the lender is responsible for the ongoing assessments and exactly how much is owed by that lender.  It will also allow the association to know if pursuing a money judgment against the prior property owner is a prudent action to take.  Stay tuned for Part V in this series, which will discuss in more detail when associations should initiate their own foreclosure actions based on the outcomes of lender foreclosure actions.