Board members of any condominium association are no doubt familiar with the following scenario: a unit owner gets behind on his assessments and refuses to bring his balance current; the association records a lien against the unit and, when that still doesn’t motivate the owner to bring his balance current, files suit to foreclose the lien; shortly after the association files its suit to foreclose its lien, the unit owner’s mortgagee files suit to foreclose its mortgage for non-payment. At that point, most associations give up on collecting from the owner and monitor the foreclosure from afar— perhaps a board member or management periodically checks the clerk of courts’ website to assess the status of the foreclosure. Or maybe the board and management take no action at all and simply wait for new owner information to be submitted after the foreclosure sale, and then pursue the safe harbor amount from the bank or the full outstanding balance from a third-party purchaser.
We’ve already told readers of this blog why associations cannot afford to ignore mortgage foreclosure actions. However, there is another reason why your association should appear and participate in foreclosure actions: obtaining information on the mortgage payoff amount. In order to properly foreclose a condominium unit mortgage, the mortgage holder needs to name the condominium association as a defendant. Accordingly, as a party to the litigation, the association can request the total mortgage payoff amount from the plaintiff mortgage holder; if the mortgagee won’t voluntarily produce that information, the association can compel its release. Outside of the litigation context, associations would otherwise not be entitled to obtain this information.
The association should obtain the payoff for a few reasons. First, the association should use the payoff information to perform an analysis as to whether the association itself should bid on the unit at the foreclosure sale. If the mortgage balance is relatively low, then it might make sense for the association to bid on the unit with the intention of taking possession, fixing the unit up, and selling it on the open market as a means of recouping the owner’s outstanding assessment balance. Alternatively, and again if the outstanding mortgage balance is fairly low, the association may want to consider bidding on the unit even if the unit owner is current on assessments, as an investment for the association and a means of shoring up its balance sheet. If an association does not request the mortgage payoff documents and information, it has no means of dealing strategically with the unit vis-à-vis its own finances, and may lose an opportunity to obtain much-needed financial relief on a unit that has created a hole in the association’s budget.
Some boards, however, may not even realize that the Florida Condo Act specifically allows for associations to purchase units at foreclosure sale. Board members may also get confused with the provision of the Condo Act that prohibits board members from purchasing units when the association forecloses its assessment lien. But, boards should know that they may take possession of units by virtue of purchasing them at a mortgage foreclosure sale, and that such purchase, when approached strategically and fully-informed, can be a very smart financial decision.