What Your Condo & HOA Board Needs to Know Before You Foreclose
Has your board been skipping steps in the collections process? If you are going from courtesy letters directly to sending delinquent owners to the community's attorney, the answer is yes. The community association attorney's only strategy for collections is to pursue the legal action of lien and foreclose on the property.
Before you make a decision to engage an attorney at expense to your association, the board of directors needs to analyze the cost benefits to make an informed decision. Blindly sending a unit into foreclosure can cost the association more money than what is owed.
Not every unit is a good candidate for foreclosure
Introducing Axela’s Pre-Foreclosure Analysis - a new product that helps board members and managers make an informed decision before committing to costly foreclosure proceedings. This analysis turns on the lights and allows the board and management to see the whether association lien and foreclosure is the best way to recover delinquent funds.
Axela Technologies gathers data on the owner, the unit, and the financial positioning from multiple third-party sources. We compile information about the unit such as if there are any lender foreclosures, any mortgages and other liens, outstanding taxes, the estimated market value, and calculate an estimated first mortgage balance. We assemble this information into a detailed report containing all of the pertinent property information to help you make an informed decision.
Answers These Questions
Does our lien have priority?
Will the bank take the deed?
Is it encumbered by tax leins?
Is the owner in bankruptcy?
Is the property in probate?
Does the owner have equity?
Is the title marketable?
Will we recover our money?
When Foreclosure is a Risky Choice and your Association Could Lose Money
Pending Bank Foreclosure
If the senior lender is actively engaged in a foreclosure action on the property, upon obtaining a judgment will extinguish all subordinate liens. This action will render the association’s action moot. If you have engaged an attorney, there's no doubt they will still want to be paid for all actions taken.
Association money lost.
IRS/Tax Leins
Other liens that will not be extinguished by the association’s foreclosure such as IRS liens, tax liens, will remain and encumber the unit and endanger the association’s ownership position. Having to deal with tax authorities in matters such as this can put the association in a bad and potentially expensive position.
Association money lost.
Property in Probate
The owner may have passed, and the property is in probate court which takes time and expense and usually an unknown outcome. During this time, the property is off-limits, but the association is still on the hook to maintain the outside of the property to keep up curb appeal for other homes in the community.
Association money lost.
Mortgage Under Water
The unit is without equity, rendering the intervening title not marketable, and the only way to monetize the property would be to rent it. However, what you may not know is the physical condition of the unit and rehabilitating it may be a very large expense that can be wiped out by a bank foreclosure not too far in the future. The result being that the association will not have the opportunity to recover past due fees, attorney costs, and rehabilitation costs.
Association money lost.
Owner in Bankruptcy
The owner of the property may be in bankruptcy which would preclude all legal and collection actions. If you gave this to an attorney it would become apparent that the owner is in bankruptcy and all legal actions might cease but guaranteed your attorney will bill you for the time they took to find this out. Knowing this information before you engage an attorney will save the association hundreds, if not thousands, of dollars.
Association money lost.
Lack of Homeowner Equity
Without equity in the home, any buyer looking to purchase a unit at auction will likely pass - the bank owns the lion's share of the property, and that leaves 3rd-party purchasers at a disadvantage. That means the association will likely end up with the title after an auction fails. But the association will need to invest in the property to get it up to rental standards, then act as landlord until the bank takes title - which could be any time, and may not be long enough for the association to get back what they were owed.
Association money lost.
When Foreclosure is a Reasonable Choice and your Association Can Recover Funds
No Encumbrances
Foreclosure would give total ownership to the association. This is a good position to be in as the association could sell the unit and recover past due fees, attorney costs, collection costs, taxes, and any other debts owed by the previous owner to the association - AND get a good paying neighbor in the future.
Money likely recovered.
High Mortgage Equity
The association ultimately takes title to the property. The association can rent or sell the unit via their own foreclosure sale, putting the association in a position to experience gains that may exceed the amount owed on the delinquent unit ledger, after the payment of superior liens.
Money likely recovered.
No Active Foreclosures/Liens
If the bank is not actively pursuing a foreclosure the association may have up to 3-5 years to monetize the unit by renting it out and that would pay for all the money owed and pay down the ledger. Knowing where the bank is regarding a foreclosure is of paramount importance.
Money likely recovered.
More Details
What's Included in the Pre-Foreclosure Analysis Report?
The Pre-Foreclosure Analysis is a detailed report for a single unit. The report contains all of the pertinent property information to help you make the decision to foreclose, including but not limited to: equity analysis, mortgage balance and status, other encumbrances, and any exiting and/or pending foreclosure actions.
The Pre-Foreclosure Analysis is available to all Axela clients from within the Axela Technologies collection platform at the simple click of a button.