'Redemption' from Uncollected Debt

Last week Gina Botti blogged about the importance of properly recording an association assessment lien. Although CCIOA states that a lien is ‘perfected’ or in place upon the recording of the association’s Declaration, it is still important to prepare and record a Notice of Lien to ensure that the lien is not overlooked upon the sale of a unit. 

It is also particularly useful to have a recorded assessment lien against a property that is in public trustee foreclosure. Although most people are aware of the statutory six month super priority lien that arises once a property is foreclosed, few are aware that a foreclosure may present an opportunity to fully recover the assessments and fees that it is owed. Once a property is sold at foreclosure sale, an association typically has eight business days following the sale to also exercise its redemption rights. What are these redemption rights? Simply put, they allow the association because of its lien to take title to the foreclosed property (away from the successful bidder at the sale) for the amount of the sales price at the foreclosure auction plus interest and other expenses.

 
While few associations are willing to take that extraordinary step, real estate investors view the association’s redemption rights as a business opportunity. If they can obtain the association’s redemption rights, they can take title to the property without bidding on the property at the foreclosure sale. The assignment of the redemption rights, however, comes at a price and that can mean the balance owed to the association on a delinquent account or some other negotiated amount. 
 
If there are no investors interested in the association’s redemption rights, there may still be an opportunity to recover additional proceeds from a public trustee foreclosure sale. If, for example, there are surplus proceeds from the sale in the case where multiple investors bid up the price of the property at the sale, the association may be able to recover those excess funds. 
 
Feel free to contact us if you would like to obtain more information on how the exercise of redemption rights may financially help your association.