Money judgments are not an effective way for an HOA to collect delinquencies. It’s often more effective for an HOA to work with delinquent homeowners to find a resolution that is mutually beneficial. This may involve setting up a payment plan or finding alternative ways to resolve the delinquency.
Foreclosure is a legal process in which an HOA takes possession of a delinquent owner’s property. The HOA then sells it to recover the money owed. While foreclosure should be a last resort for collecting past-due assessments, pursuing a foreclosure may be a better option than seeking a money judgment. Here’s why:
- Why get a judgment on a secured debt? The property is the collateral. Why get a money judgment and then go to court again to get a writ to collect?
- Recovery: Ever try to garnish wages or repossess assets to collect on a judgment? It’s not easy. People can, and often do, evade efforts to collect. You already have the best collateral for the debt – the property itself.
- Difficulty in enforcing judgments: Obtaining a judgment is only the first step in the collection process. The HOA must then take steps to enforce the judgment, which can be time-consuming and costly. This may involve garnishing wages, levying bank accounts, or seizing assets. When it comes to collecting, you are on your own.
- Limited recovery: Even if a judgment is obtained, there’s no guarantee that the delinquent homeowner will be able to pay the amount owed. If the homeowner is unable to pay, the HOA may not be able to recover the full amount of the judgment. The money spent to get the judgment was wasted. Negative impact on community: Pursuing a judgment against a delinquent homeowner may create tension and conflict within the community. This can be more difficult in a small community where residents may have close personal relationships. If the community has an ongoing wage garnishment on a resident, the animosity may drag on for years.
The overwhelming majority of the time, owners facing foreclosure pay before a sale occurs. Foreclosure is the end of the road for the owner, and they almost always find the money to pay to stay in their homes. Starting a foreclosure does not mean the sale will occur, and from our experience, it seldom does.
Want some more reasons why foreclosure, while still a last resort, is better than a judgment?
- Stronger legal remedy: A foreclosure is a stronger legal remedy than a money judgment because it allows the HOA to take possession of the property and sell it to recover the unpaid assessments. A money judgment is a court order requiring the homeowner to pay the amount owed, but the HOA must still take extra steps to enforce the judgment and collect the funds.
- Quicker resolution: Foreclosure can be a quicker process than seeking a money judgment. It’s unusual for the foreclosure process to take more than a year, and in some states, that time is less than half. In contrast, obtaining a money judgment can be a lengthy process that may involve multiple court hearings and appeals.
- Higher recovery rate: Foreclosure is better for the HOA because the sale of the property can often cover the unpaid assessments, legal fees, and other costs associated with the foreclosure process. With a money judgment, the HOA may not be able to recover the full amount owed, and this is guaranteed if the homeowner is unable to pay.
- It’s a deterrent: Foreclosure may deter others in the community from defaulting on their assessments. This can help to keep the HOA financially stable and protect the value of the community.
Delinquencies are often settled when a new buyer purchases the property under “joint and several liability” doctrines. If you have eviscerated an amount of the debt and turned it into a personal obligation, it’s more difficult to collect when the property sells. The association has a judgment but must still work to collect on it even if the owner sells the property, when it could have been paid in full at the time of the sale.
During the real estate meltdown of 2008, associations foreclosed and took title to units that were underwater because everything was underwater. Then, they would refurbish and rent the units. The banks were not foreclosing, the units were underwater, and the associations had no choice if they wanted to be proactive. But times have changed, and there’s a record amount of equity in the housing market. The chances that the association will ever take title in these times of high property value and opt to rent the property are incredibly slim.
If you go after somebody with a money judgment, they will evade you until they cannot. It can take years before you get to cash in, if ever. This is not about revenge; it’s about cash flow. When an HOA goes after a delinquent owner, you can be sure that the debtor would be more motivated to pay with a foreclosure over their head than a money judgment. A foreclosure is hard to get out of, if the HOA does it right. They may be able to circumvent or have exemptions not to pay a judgment.
It’s important to note that foreclosure is a last resort for collecting assessments. Before foreclosing, the HOA should work with a specialized and licensed collections solution like Axela-Technologies. Our services include client outreach, respectful phone calls, emails, mailed letters and notices, bank notifications, credit bureau reporting, and other legal and fair methods to collect. For a no obligation collections analysis, please Click Here and let us show you “How the Future Collects.”