If your association has been feeling like too many of its delinquent properties have been undergoing foreclosure by lenders, it is not alone. The country is facing increasing foreclosures overall and Colorado, in particular, has been singled out as a problem state.
We all know the havoc a lender foreclosure can wreak on the association’s collection attempts: if the association decides not to exercise its right to redeem, and thereby take ownership of the property, it loses the right to its lien�perhaps the most potent remedy an association has to collect its assessments�and is entitled only to a super lien worth six months of assessments. Is there anything we can do to limit loss in these situations?
The truth is that associations lose out when lenders exercise their right to foreclose. All too often, the same homeowners who have let their mortgage go into foreclosure are also facing the possibility of bankruptcy. When a homeowner’s personal obligation has been discharged through bankruptcy and her property foreclosed, there is usually little the association can do to collect unpaid assessments.
But not all owners who lose their property file bankruptcy. In these owners, associations may see a glimmer of hope. When an owner has not filed bankruptcy, we can pursue her for all assessments, plus late fees, interest, and attorney fees, through the end of the owner’s redemption period (a date 75 days after the date of the foreclosure sale). The most important way to facilitate this process is to forward these cases to your attorneys in a timely manner because the sooner we begin the collection process, the sooner we can serve the lawsuit. This is important because to obtain a judgment, we must personally serve a lawsuit on the homeowner. If we need to serve the homeowner after the lender has evicted her as a result of the foreclosure, the association may have to spend additional funds to locate a homeowner who will likely fly under the radar for several months or longer. Timing is critical.
The rising number of foreclosures poses a threat to the association budget, but associations that take a proactive approach to their collection accounts may at least cushion the crunch until this foreclosure trend passes.