Oregon Supreme Court Smacks Down Lending Practices That Hurt Community Associations

Oregon has dealt with dirty lending practices before

During the last real estate meltdown one of the biggest problems was that banks who financed purchases of condominiums were not foreclosing and in essence leaving the community association “hanging out to dry.” The State of Oregon addressed these dirty lending practices with some powerful legislation.

In Oregon, the priority of condominium assessment liens is set out by the Condominium Act. This “super-priority” is an exceptionally powerful tool to get condominium associations paid. Even if the property is foreclosed on by the original lender, the association has some protection, getting paid a certain amount before the mortgage holder.

6 months assessments isn't much when the bank takes 3-5 years to foreclose.

Lenders keep finding new ways to wiggle around the law

In most cases, a super lien (found only in super lien states) will provide a community association with a set amount (usually 6 months of assessments) upon foreclosure. This is done to reimburse the association for the cost of maintaining the bank’s collateral. (Even if the owner has abandoned the property, the community association must maintain it, or risk all the properties around it getting reduced in value. When neither the owner or the lender pay the assessments, the other community members have to absorb those costs.) Unfortunately, 6 months in assessment income isn’t much when the bank takes three to five years to foreclose. Truly this is the definition of throwing an association “under the bus.”

When it comes to assessment collections and condominium cash flow, Oregon wisely set a time horizon and trigger for the banks to begin foreclosure action or lose their lien priority. This law pressures the banks to get on the case and get the property performing again. The definition of a “performing property” is one that pays its assessments on time in time every pay period. If owners are delinquent in their assessment payments the banks must take action within 90 days of the association notifying them of an assessment default. If the bank/lender fails to take action within 90 days of the association notifying them of an assessment default then they (the bank/lender) will lose their lien priority and ultimately lose their ability to foreclose as the superior lienholder. Luckily for Oregon Condo Associations, this provides a great level of protection for condominiums who have had the unfortunate experience of dealing with delinquent condo owners.

One condo association decides to fight back in court…and loses

In this case, Tanglewood Hills Condominium filed a lien against the owner and right after that, the bank (The Bank of New York Mellon Trust Co) filed its foreclosure action. So far so good. However, less than a year later the trial court dismissed the case due to the bank’s lack of prosecution. Subsequent to the dismissal of the action, the association notified the bank that the unit was in arrears When the bank finally did take action, after the passing of 90 days, they moved to reopen the old case in an attempt to circumvent the 90 rule. (THAT’S SHENANIGANS!) The trial court gave them permission.

They moved to reopen the old case in an attempt to circumvent the rule.

The association appeals to the state supreme court…and wins

The foreclosure went forward and the bank obtained a judgment. The association appealed the trial court’s decision, but the Oregon Court of Appeals ultimately affirmed the trial court’s judgment. Not to be deterred, the association appealed further to the Oregon Supreme Court. The appellate and trial court’s decisions were later reversed by the Oregon Supreme Court and remanded for further proceedings.

The association followed the rules and played it smart and won the day. Unfortunately, not all community associations have the level of legal protections that the State of Oregon offers, nor the wherewithal to take their case all the way to their state’s supreme court.

An alternative for associations that doesn’t have to end up in court

At Axela Technologies we believe that an association/lien foreclosure should be the last desperate attempt to collect delinquent assessment fees. We believe that owners should be engaged, informed, and given the opportunity to resolve the issue. If they don’t come to the table the association has no other choice than to foreclose if the conditions are right.

This was a tremendous win for the community association, but only because they understood the laws and acted properly by notifying the bank.

This was a tremendous win for the community association but only because they understood the rules, laws, and acted properly by notifying the bank. Axela Technologies notifies lenders when a unit is in arrears and in collections with our company. This notification is part and parcel of our collections process and often the banks will pay for the delinquent assessments. In Oregon this protects the interests of the association should the bank foreclose. Collections should be managed by professionals who know and understand the dynamics involved. Call Axela Technologies and let us give you a free no-obligation collections analysis. Our fees are deferred and at our risk so that the association does not pay for collections activity. Let us show you a better way.

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