Condo Association Management Blog

I am the new president of a condo asso. in DC and in the same boat that you are in (over 360K in back Condo Fees) please let me know what to do. Owners are underwater with no value in their property I also like to know what to do.

I don't understand why you cannot foreclose "due to the significant drop in housing values." What do housing values have to do with the HOA's legal authority to take title?

George is correct, regardless of property value, you can foreclose to take title to the property, even if it has a mortgage on it. In Florida our liens are always secondary to mortgages and tax liens, but until the bank moves to foreclose there is usually time to take title, evict, rent the place out (fix it up if you must) long enough to recoup the back assessments and costs. If they are not behind in their mortgage, the bank will not be happy to get the notice you are foreclosing, and tell the owner they are in default of the mortgage contract by not paying assessments on the property. That may get a reaction you need. It sounds harsh but you have a duty to exhaust all avenues to collect. The above is expensive and not a simple solution (you must spend assoc funds on legal counsel), but sometimes a strong move makes a strong reaction from the homeowner, and they may at least make offer for a payment plan (hopefully you made that offer to them too). Good luck.

You've got a very difficult fight on your hands. 
 
You should consider foreclosing even if you will not be able to recoup all the costs and back dues. First of all this will send a very strong message to everyone in the community, second you'll get new people to move in that will, hopefully start paying. 
 
Also consider suing these owners. HOA Dues are personal liability (at least in CA) and this will allow you to go after their assets elsewhere. Do an asset search and see if they own other properties and proceed with liens/foreclosures on those to collect. 
 
This is harsh but you really need to do it. First of all you have a duty to protect your association second you need to send a very strong message to all owners that this behavior is not tolerated. 

Download a copy of the Maryland Condominium Act. You will find a section that deals with your problem. Simply put "Maryland Condominium Act" into your browser to find it.

It is never good to have a whole bunch of foreclosures in a community. With only 40 units, 98K is a significant amount of their budget. Foreclosures are not good for property values, not good for resale values, and it is usually difficult to attract fiscally responsible new owners. Plus, usually when units are bank owned, it's difficult to get the banks to pay the maintenance, and to upkeep. Assuming the Association needs more money and is not in the position to spend money to upkeep someone else's property (the cost of which can be significant), try and work something out. Place liens, collect from any renters in the units, and if possible bar anyone who owes from using whatever common elements you can. Where you can make deals. No one wants to put their neighbors out on the street especially since the only real proven reliable job market seems to be in government which continues to grow -- and then charge us all more money in taxes. 
 

The condominiums of today are the slums of tomorrow. Laws must be changed.

I feel your pain! Foreclosures in Washington State are very restrictive. Once the foreclosure is approved by the courts the owner may dwell in the unit for one full year afterwards. Once the year is up it takes another 5-8 weeks to get the unit vacated. All of this, of course, costs in legal fees. My fellow board members and I feel, however, that in order to protect the value of the property we must be strict on bad debt. We are not a charitable institution nor can we afford to absorb the loss of dues. Foreclosures may lower property values but so do short sales and under-reserved capital for future projects. Another thing to consider is special assessments. We had to do one to buy flood insurance when there was a threat of flooding last fall. 20% of the homeowners have not paid their $600 assessment so the rest of us must cover the shortage.  
 
Good luck. Renee

I appreciate the many responses to our inability to collect the growing HOA delinquencies, but I'm perplexed by several comments about foreclosing on our liens "regardless of property value". To exercise a MD court sanctioned foreclosure by the HOA any liens (mortgages) superior to our judgement liens must be satisfied first. So, here's a scenario - auction value is est at $30K - legal costs. Units have mortgage balances of $45-85K. We can't obtain clear title until their mortgage companies get their money first and sadly there's not enough equity to even satisfy the mortgage company. Being to harsh is not stopping us but lack of equity is. MD law also prohibits us from denying critical services such as water and hot water paid for by HOA fees. We cant lock them out of the building nor deny parking( no ability to police parking and street parking is available right in front. Pretty sad !!

I signed a petition a year or so ago to end the tyranny of hoa's. I wonder what happened with that. 
 
If this economy dips again , disbanding may be the best solution. There may be no choice. Already in florida, owners of paid for units are walking away because they can live somewhere else for less as their dues spiral out of control.  
An administrator appointed by a judge may be a better alternative than having a board of directors. My community needs to pay the water bill and trash. We'd lose the pool and the tennis court is already unusable. There are other benfits too. Making the streets public roads would subject them to law enforcement ( a major plus). 
 
There is plenty not to like but there are alternatives. We dont have to be forever locked into a losing battle.

Chuck, 
you are absolutely correct about not being able to collect when the mortgage is more than the value. The advantage of foreclosing in this situation is to force the bank to take on the property. Once they have the title they'll be responsible for paying HOA dues. You may not have an easy time collecting past dues but you will at least get your money moving forward.

I agree with Zhenya's observations about the advantages of the HOA moving to foreclose. In CT, the HOA is guaranteed six months of back assessments plus any attorney fees and costs in a foreclosure action of this type. Find an attorney who can accept a minimal retainer. The HOA must protect its community and act on behalf of its paying members. The Association is like a Town and its assessments are like taxes; your owners must understand that the first check they write each month should be to the HOA. In my view, the HOA needs to have a legal/collection component that is ready to go to court as soon as the statutory limit for its priority lien is approached. The poorer choice in my view is for the HOA to permit non-payers to drag down the the HOA's ability to provide services- which also will be a cause of reduced property values directly attributable to the Association. Finding a legal/collection component at reasonable cost is critical; the HOA needs to be capable of going to court and not focusing on reasons why it shouldn't. If the HOA cannot collect, or is unwilling to collect from the non payers, it could mean disaster for the entire community.

If one goes bankrupt doe that stop all foreclosures?

Just because the bank takes title to the property does not ensure they will pay. I have witnessed this first hand & keep fighting with the bank not only to pay, but to maintain the property and cooperate with the Association. Just because the law says that the bank has to pay, the bank has a ton more resources for legal advice and legal fights than an HOA. There is one particular property I have in mind where the bank has owned the property for over 2 years due to foreclosure, the doors and windows are all open, the bank refuses to board it up or maintain, and they still haven't paid any maintenance to the Association. We are now faced with the choice to file more legal paperwork to force the bank to hand over title after which we will have to eat the fees, eat any maintenance, eat any repairs, etc. afterward. Two more are going this route as well which are bank owned. We have even had the banks lie that the unit is still in the owner's name, not the banks and hold off on recording change of title. 
 
It is a nightmare all around. Unfortunately when HOA's were thought of as the newest and best thing, these situations were not considered.

Again, I appreciate the feedback, but we cant foreclose on a unit without sufficient equity to pay the superior liens in front of our judgement liens. Perhaps other states have different laws but in MD this is our legal problem. We want to foreclose but can't. Some comments seem to miss this issue. Should property values rise significantly again we may have an opportunity to go forward.

Chuck, I'm a lawyer and legal officer for my association - after reading your last comment I accessed some Maryland law online and discovered that MD has new legislation in 2011 that provides HOA with priority liens in the amount of 4 months of assessments. See website URL below. Now the HOA can bring a foreclosure action as a first lienholder. You may now be able to promise non-payers a foreclosure action unless they start paying up and make arrangements to pay all back amounts. I say again to you that you need to find inexpensive legal counsel (get a youngster out of law school or a retired lawyer- SEEK legal help that's not going to bust your budget, and/or learn more about the law YOURSELVES. You obviously didn't know about the new MD laws. Please know that your posts and the responses have been quite valuable I think. http://www.schildlaw.com/legis.htm

Zhenya, 
 
 
 
Hey George, you are correct...I am not a lawyer and know just a little about MD law. I am aware of the new MD HOA priority law and spoke with Atty Tom Schild, sponsor of this law. It applies to mortgages after Oct 2011. He reviewed our collection attempts so far and said there is nothing more that can be done until there are further changes to MD laws. I will try and beter understand this new MD law as best as I can.."Now the HOA can bring a foreclosure action as a first lienholder". This staement perplexes me and if true I would thought that Tom Schild would have mentioned it. THANKS AGAIN

Addressing Jan's post on 8/3/11: filing for bankruptcy does stop a foreclosure with what's called an "Automatic Stay" of all legal proceedings involving the debtor. But- it's simple to go to bankruptcy court to get a "Relief from Automatic Stay" - foreclosure is given priority for such relief. Perhaps the Clerk of the (federal)Bankruptcy Court can provide guidance for a pro se HOA application for "Relief from Automatic Stay." Otherwise you will need a lawyer.

To Chuck's post of Aug 5:Chuck, you must have misunderstood Schild. Here's what Schild's website says: 
 
"New laws were passed by the Maryland General Assembly in 2011 regarding association liens and other topics. Condos and HOAs will benefit from legislation which allows a 4-month priority lien up to $1200 of unpaid assessments. When a lender forecloses, the association lien will be paid before the mortgage debt.  
 
Throughout the 2011 legislative session, Tom Schild met with legislators, submitted written testimony and attended committee hearings in support of the priority lien bill.  
 
 
 
The new assessment lien law applies to loans obtained after October 1, 2011. 
 
 
 
In 2010, there were over 10,000 lender foreclosure sales in Maryland, according to the Maryland Department of Housing and Community Development. Over time, the priority assessment lien law will provide tens of millions of dollars to Maryland condos and homeowner associations." 
 
http://www.schildlaw.com/legis.htm 
 

Chuck: I apologize. I misunderstood and misread his website! Your info is clear as day. It's a weak law that will only benefit HOA's "over time." 
 
Sorry for you and other HOAs in MD.

George, I appreciate yours and other's challenging comments...& sooner or later we WILL find a better answer to our problems. Right now we are sadly in a death spiral ! Chuck

Chuck, I don't want to leave the problem hanging on the site. Maybe if we keep discussing, some other avenue will appear. Zeroing in on your scenario post on Aug 2 and the one on Aug 4, let's explore what might happen if you filed to foreclose on a judgment lien. How would the owner respond? Would it vary from owner to owner? You know, maybe the owner(s) would simply want to pay you guys rather than going through a foreclosure action. In other words, if you guys brought the foreclosue action, wouldn't it still mean that the owner would lose title to the bank? What I'm suggesting is a hardball play that would require a delinquent owner to deal with you for fear of losing title to the bank.

What if the unit owner is deceased? How does the HOA recoup a years worth of delinquent condo fees 7 stay current? 
 
It's been a year since the owner died. She left no will so it didn't go to probate. Family took what they wanted out of the unit, walked away & turned their backs of the situation. 
 
We have hired a lawyer to put a lien on the lender, Chase Mortgage, LLC. 
 
The condo association wants to take possession of the unit & use it as a rental. 
 
We are a small (9 unit) association in Massachusetts. 
 
Any help would be appreciated. 
 
Thanks!

If I may, I'd like to suggest a solution which is working in several states around the country. It's the missing step between when the HOA's or Management Company's internal efforts stop working, and before you pursue expensive legal avenues. 
 
Simply put, in today's market, you have to go after the person - not the property. And you do that with Credit Reporting. 
 
Credit reporting is not a cure-all for delinquent dues, but in many cases it's a very effective motivator. There are only two things you will ever deal with when it comes to someone paying their debts - their ability to pay, and their willingness to pay. Today a percentage of homeowners are able to pay, but are unwilling – especially those who are upside-down regarding their property value. Threatening to put these people further upside-down by way of a lien is laughable in their eyes. 
 
But, ah… touch their credit… now that’s something different. You see, if people are still in their property they’re paying somebody – they’re just not paying you. The consequence of credit reporting (and having the interest rates on their outstanding credit card debt spike) puts paying their HOA dues back in its proper priority. 
 
Yes, I work for a firm that does this – in fact we do a lot more than just credit report, and we do it for less than the cost of most Pre-Lien Letters. We motivate those with the ability to pay who are unwilling, while providing flexibility for those willing to pay but unable. Homeowners pay their HOA directly with this system. So you can show mercy to those who deserve it, time to facilitate payments for those who need in, and a fair justice for those who warrant it. And the system is exclusively endorsed by the National Homeowners Advocacy Group as the most fair and just way to resolve delinquent dues.  
 
If you like you can call me with questions at (800) 441-6005 x107, or email me at rslater@ncspinc.com. Better yet – ask to speak with some of our clients. Let them tell you how well it works. 
 
Thank you for your time. 
Richard Slater

By the way... 
 
We also credit report banks who owe back dues. Credit reporting businesses negatively impacts their D&B Ratings. 
 
I'll spare you the details, but we've collected thousands of dollars, even from major banks, for delinquencies. 
 
Credit reporting works. 
 
Kind regards, 
Richard

I work with Associations Nationwide on collections and these types of situations are happing everyone, not that it makes it any better knowing your are not alone.  
 
One of my client companies (solar company) gave me this, which I believe can help get some of these failing associations back on track (only a real benefit in a few states at this point). If it sounds good let me know and I will get you in touch with them.  
 
 
 
We want your roof.  
 
1. Why do you want my roof? We are a Texas based solar company that wants to put a solar generating system on every business roof.  
 
2. What is it going to cost me? Nothing. We have all the money we need (see below).  
 
3.Does that mean zero down or no cost? That means you will not be charged a dime.  
 
4. I’ve tried this before and it seemed like a very complicated process, how are you different from everyone else? We want to pay you a good wage to lease your roof space for our solar system. Ok tell me more. There are two reason to do solar- reduce your carbon footprint and/or make money. We have simplified the process for your company to make money with solar, although the carbon footprint you reduce might not be your own.  
 
5.Who owns and maintains the unit? We own the unit and maintain it.  
 
What’s the deal? There is ALWAYS a catch. No catch here. If you OWNED the unit you would get the tax incentives, state and federal rebates, be able to sell excess power back to the grid, gather up your last 2-3 years of company financials, have to find a lender for the system, research/determine the best system for your space and worry about ROI. We keep all incentives, put up all the money, and sell the energy back to the grid.  
 
With us, we lease your rooftop from you and pay you in SREC (Solar Renewable Energy Credits). What are those? For every 1000 kilowatts a solar system generates it produces 1 SREC. A 40,000 square foot roof with usable roof space of 20,000 square feet will generate roughly 300 to 600 SRECs per year. SRECs are traded like stocks and are valued from $30 to $695 depending on where your property is located. Click the web-link below and see the states that trade SRECs and the most recent value (some states like Ohio let bordering states trade their SRECs at a lower price, since those states does not have their own SREC market or their price is low- IN, KY, WV, PA, MI). Illinois has limited trading areas in PA only (Com Ed territory only - Northeastern Illinois).  
http://www.srectrade.com/srec_prices.php 
 
So let’s say your roof top will produce 300 SRECs per year and you live in Maryland (check price on web-link above for Dec. 2011 most recent value).  
 
$210 per SREC x 300 per year= $63,000 in income to your business with NO capital outlay at all. What if your property was located in Massachusetts $530 x 300 = $159,000 in extra income. What if your property was in Delaware $60.10 x 300 per year= $18,030 in extra money to pay your electric bill every year, you are not getting rich, but at least it is something. Plus, your energy rate will be fixed for the life of our lease agreement (20 yrs), so you don’t have to worry about your electric rate going up.

Thank you for the great posts. I have done residential rental buildings, conversions and commercial real eastate to include the Watergate Hotel. As Lehmann crashed so did my company and 9 months later found a D- management condo company and took the job as I was deceived by their fake affiliations. I was given a very troubled 40 unit building that was converted by a slumm lord, they sold to an investment group of elite friends who inflated the values about 3.5 times, then sold to straw buyers and all units were sold the first 6 months and almost every single unit had foreclosed except on a few straw buyers. The units were being sold by the banks at a 140k while sone of the not in people are stuck with 385k plus mortgages. Developer took 4 years to hand over no records and would not let me investigate with the banks,or allow me to get proof from the owners once we fugured out who was living there. The investment group and new board took the word off all the people they liked and acted as the ownes they hated never paid. Charged banks back 4 plus years as a good estinate on all foreclosures, refuse to give a ledger, can't account for monies paid by developer and large family. I heard DC Law only lets the HOA charge back six month and it has taken the new board 2 years to put liens on the units of people they hate and extort banks. If a homeowner is not provided a ledger, no audit has ever been done how can they foreclosue? The unit is worth 140k with a 390k loan and they claim 20k past due since purchase January 2007. They had to pay cash and provided services not to have to pay condo dues and as it's documented on emails no ledgers no credits. Looked at DC Horizontal Condo Laws and The Comdominium act but would really appreaciate any feed back