Playing The HOA – A Continuing Study in Audacity (Part V)

From Tax Deed Sale to HOA Victory: How to Recover Your Cash

By Michael Jenner, MBA, as told to Mitchell Drimmer, CAM

Background: 

This case study involves a legal dispute regarding overages from tax deed sales of multiple undeveloped lots within an HOA in South Carolina. With the help of Axela Technologies’ collection partners, the Delinquent Tax Collector for Greenville County, South Carolina, was petitioned to reward surplus funds from the tax deed sales to the association to cover past due assessments owed by the lots sold. 

Challenges Faced:

  1. The association discovered that eleven undeveloped lots within it were so delinquent on property taxes as to be sold at tax deed sale. 
  • Superiority of liens. Although the association had a contractual lien via its CC&Rs, if any other superior lienholders or mortgages were found, there may not be enough surplus funds to cover the assessments owed for that lot. Fortunately for this association, no superior mortgages or lienholders were found. This means the association’s liens are first in line.
  • Statutory time limits apply. Under South Carolina law“If neither claimed nor assigned within five years of (the) date of public auction tax sale, the overage shall escheat to the general fund of the governing body.” If the association does not file a claim in time, surplus funds may not be available, and some of the lots are nearing that deadline.
  • The association failed to petition the court for the surplus funds right away. Why did the association not petition the court before they engaged Axela Technologies and their collection solution? Community associations are creatures of statute, and the association’s attorney should have considered this strategy. If the association was self-managed, they still should have consulted counsel on this matter. Thankfully, they did reach out to Axela for help.

Resolution:

  1. Axela’s collection solution petitions the courts. The petition advised the courts that as the association is a not-for-profit corporation organized and operating under the laws of South Carolina, with its main office in Greenville County, South Carolina, and holds claims of liens against the various properties for unpaid fees, dues, and charges, and that said properties were all sold at tax auction sales in the last five years, it claims a contractual and continuing lien based on the CC&Rs against each property, which they believe entitles them to the surplus funds from the tax sales since no superior lienholders or mortgages were found. The total amount of surplus funds listed on the petition was over $82,000, which might otherwise never have a shot at being recovered. 

Lessons Learned:

  1. Don’t just give up. Many boards, managers, and apparently even attorneys simply give up when presented with a challenge such as a tax deed sale. However, such an event does not mean all is lost. Make sure your collection partners are doing their due diligence to recover past-due funds, no matter the circumstances of the case.
  2. Time is of the essence. If a claim on the tax sale surplus had been submitted right away for each lot, the chances of recovering funds would be much greater. Fortunately, statute S.C. Code § 12-51-130seems to be on their side. Don’t delay acting. When a tax deed surplus is involved, the early bird with the superior lien position gets the worm. 

CASE NOT CLOSED (YET):

The outcome of this case will depend on the court’s interpretation of the CC&Rs, the South Carolina Code, and whether the Plaintiff’s liens and claims for unpaid fees, dues, and charges take precedence over the tax sale surplus amounts held by the Defendant. As of this writing, the petition is still in front of the court, but every day, Axela’s collection solution seeks to recover funds that uninformed associations routinely write off. If your collection solution or attorney is not relentless or innovative in seeking recovery of your past due delinquent assessments, perhaps your community needs to review your methodology regarding cash recovery. If that is the case, contact us today so you can learn more about How the Future Collects.

Get Us In Your Inbox!

Subscribe to the Axela Blog for regular updates in your inbox when we publish new articles. Stay informed on all the latest happenings with community association collections.