In an improving economy, the important of monitoring a public trustee foreclosure sales has additional benefits above and beyond making a claim for payment of the association’s super priority lien. As most of you are aware, following the filing of a public trustee foreclosure, CCIOA provides for recovery of up to six months of delinquent assessment fees. For years, the importance of monitoring a public trustee oftentimes had little significance above and beyond making a claim for the super lien and determining the new owner following the sale of the property.
With property values continuing to rise throughout the state, many foreclosed properties now contain equity. For community associations, equity is basically defined as any remaining value in the property after subtracting out the balance due to the holder of the first Deed of Trust (first mortgage).
When a property goes to foreclosure sale an auction is conducted. The bank/lender will submit an opening bid which is typically the lesser of the amount that it is owed or the fair market value of the property. If the bank bids the amount that it is owed and other investors at the sale bid up the price, there will be a surplus from which creditors can recover. An association is normally first in line to recover the surplus funds which it can use to offset any remaining balance owed from the delinquent homeowner – above and beyond the super lien. Many times this can result in a full recovery of a longstanding and difficult to collect balance! Since the requirements for recovering the surplus proceeds vary by county and are time sensitive and very specific, it is recommended that you have your legal counsel monitor the foreclosure sales and make the claim for the surplus proceeds.