Late last week, StockMarketsReview.com posted a story entitled “Revenge Foreclosure Is a Tool in the Hands of HOAs.” The story begins by asserting that a new term “revenge foreclosures” has been coined in the HOA world. “It refers to the increasing number of foreclosures being initiated by homeowners associations against house owners for unpaid association fees. It is easier for the associations to foreclose than the banks because here the question of proof of ownership does not arise.”
The story goes on to describe the following scenario: “The associations engage debt collectors to do their work. LM Funding grants loans to the associations and then brings their books up to date. The firm shares a proportion of the collected fees. Frank Silcox, CEO of the firm said about the associations foreclosing on the unit owners, “They are angry, and they make a short-term decision. They’re thinking they just want to get back at them.”
While it’s unclear whether this story was intended to describe a purported national trend, this misleading story presents a gross oversimplification of the decision-making process that boards of HOAs go through when considering foreclosure as an option for the collection of delinquent assessments.
Here are important points the story neglected to cover:
● The collection agency scenario described in the story is not at all common – at least in Colorado. Instead, many associations work with legal counsel to examine all available options to effectively collect delinquent assessments.
● Assessment income is generally the only revenue stream available to not-for-profit associations. As a result, the problem of delinquent assessments is a very real challenge for associations in these tough economic times. Without having effective methods for collecting assessments, associations are unable to maintain the common elements, provide services to residents and protect property values. Ultimately, the paying owners in associations pick up the tab in the form of higher assessments.
● Foreclosure is only one tool that associations have available in the collection of delinquent assessments. For the vast majority of associations, foreclosure is utilized only as a last resort. The boards of associations do not take the foreclosure option lightly and proceeding with this option is often a difficult decision to make. “Getting back at homeowners” is rarely – if ever – a motivation for foreclosure.
● Foreclosure is a valid option for associations to consider when an owner is chronically delinquent in paying assessments, an owner is judgment proof, an owner is not able to be served with a court action to obtain a personal judgment against the individual, there is adequate equity in the unit which will be foreclosed upon and a lender has not already commenced a public trustee foreclosure action.
Are HOAs utilizing “revenge foreclosures” in Colorado? Absolutely not and I have this to say to StockMarketsReview.com: Are you kidding me?!
If you would like to learn more about how Winzenburg, Leff, Purvis & Payne can assist your association with the effective collection of delinquent assessments, please contact Stephane Dupont at firstname.lastname@example.org.