Condo Association Management Blog

The short answer is yes. It is a business decision. 
 
 
 
The board may have spent a lot of time, effort and association monies in pursuing collection. With foreclosures and the threat of foreclosures, it may be in the best interest of the Association to collect what it can. Many states have statutes that protect the mortgage company/primary lender from these debts, and if they foreclose, the only choice is to go after the former owner because they are legally obligated to pay the debt. However, if they lose their home, do they really have any money to pay that debt? Some people are doing short sales in an effort to sell without being foreclosed and are basically paying off their debt and losing money. If the primary lender forecloses, you as an association may lose more money. It is far better to minimize the losses and get an owner in that can pay the assessments than it is to have a unit that is not paying and is sitting empty.  
 
Your board may have been advised to take such an offer by their legal counsel. These are tough choices and it doesn't make anyone happy, as everyone else must absorb that cost. There is no easy answer that will make everyone happy. Trust me, the seller probably isn't happy either. 
 
It is not unreasonable to ask your board to explain to you why they are taking this offer. While it is an emotional issue for many (because it is unfair, but it is reality) people get heated over it. Don't let your emotions get the best of you - be reasonable and understanding. It was probably a difficult decision for your board and very possibly quite contentious.

In Massachusetts, while the board has the authority to reduce the debt, there is really no reason to do so. This is state speciifc based on the Massachusetts Condominiuum Act and its prioroty lien. Different advice in different states I suspect. 
 
Cut and paste this link for more info: 
 
http://www.meeb.com/legal_alert/legal_alert_08_09.htm  
 
 
 
Stephen Marcus 
 
Marcus Errcio 
 
781.843.5000

Like Joe and Stephen said, it all depends. Yes, the board has the authority to write down debt because they are the creditor. Now, the issue becomes should they? In states where the condo has super priority (the condo lien is superior to the mortgage), no, there's no real reason they should. they'll be paid off at the sale, whether a short sale or foreclosure sale. As a board member, I don't think I would freely give up protected money. 
 
Now, in states where your association doesn't have super-priority, sure, the association would be wise to play ball because they need to recoup what they can so the mortgage company doesn't wipe them out at foreclosure. 
 
The third possibility is that they have super priority but are so tired of the guy they forgive part of the debt just to greese the skids to move him along and get someone in who can pay. We've done that a couple of times. Joe was spot on, I assure you, the board meeting where this was discussed was quite heated!! 
 
Darron Hay 
 
HOA Receivables Management