Condo Foreclosures Offer HOAs Critical Enforcement Power

The right to foreclose on a residential property evokes emotionally charged sentiments. Banks or credit agencies perform the chore as part of their routine duties, but when a homeowners association or condo association resorts to foreclosure, tempers often flare.

Too often, property owners regard homeowner associations more as loosely-knit groups of disparate neighbors than the nonprofit business corporations they really are. The vast majority of volunteer board members of homeowners associations conscientiously comply with their governing documents and try, to the very best of their ability, to adhere to all local, state, and federal laws and regulations that involve deed restricted, mandatory membership communities. In fact, most board members compassionately try to resolve conflict and confusion among homeowners with informal discussions, communications and surveys. Referring a recalcitrant homeowner to an attorney is a decision of last resort, after all efforts at resolution have failed.

The issue of foreclosure proceedings on delinquent assessments is especially sensitive because it involves a family's home. While some challenge even the fundamental right of homeowner associations to take someone's home for nonpayment of maintenance fees, more on point should be the number of homes that were actually sold by homeowner associations. An association may post a home for foreclosure, but very few foreclosure sales actually occur because the delinquency is most often paid or settled. Homeowner associations really don't want to take someone's home; they want the maintenance fees paid so the association can meet its financial obligations.

There are two types of foreclosure available to homeowner associations in many states -- judicial and nonjudicial. Judicial foreclosure involves filing a lawsuit against a homeowner who has not responded to the homeowner association's requests for payment of delinquent assessments. The process can be prolonged and expensive for both the association and the homeowner, a financial quandary for which neither usually has the financial resources to pay.

Nonjudicial foreclosure, on the other hand, requires less time and money, as the process entails an attorney: 1) advising the homeowner of the association's intent to foreclose if payment is not received or payment arrangements not made within a specified statutory time period, and, following this period, 2) posting the home's address at the courthouse, where at a designated date either the association's attorney or other trustee conducts the foreclosure sale. In most instances, the homeowner association has made every effort to collect the past due funds before referring the account to its attorney, and the attorney has sent several communications to the homeowner before filing the foreclosure documents.

In both nonjudicial and judicial foreclosure, the homeowner can usually halt the proceedings at any time, including up to the moment of foreclosure, by either paying the total accrued delinquency or reaching a payment agreement plan with the association.

There is a third type of foreclosure available in some states, although currently it is usually permitted only in home equity default situations. "Expedited Foreclosure" is a process that incorporates aspects of both judicial and nonjudicial foreclosure, minimizing legal fees while providing a court hearing for the homeowner. Upcoming state legislative sessions across the country may consider this third alternative as a means to resolve concerns about a homeowner's right to appear before a judge before forfeiting his home for nonpayment of his homeowner association's fees.

The right to foreclose is a harsh remedy, but one that is absolutely necessary if homeowner associations are to provide the services for which they were created. In the Inwood North Homeowners Association vs. Harris case, the Texas Supreme Court stated, "The remedy of foreclosure is an inherent characteristic of the property right. It is generally the only method by which other owners will not be forced to pay more than their fair share or be forced to accept reduced services." Prior to that decision, cash-strapped homeowner associations in the state of Texas had to stop providing the services required by their bylaws and covenants because there was no effective way to collect the maintenance fees from those owners who refused to pay. As a result, in many cases trash went uncollected, street lights were turned off, pools closed and deed restrictions were allowed to lapse. Property values plummeted in those communities.

Homeowner associations are created to manage the common areas of a community and provide for necessary services from which all property owners benefit. The volunteer boards who step up to leadership in preserving our communities must retain an enforcement process to ensure compliance. As community association managers, we must train these boards to act fairly for all of the property owners, using the valuable right to foreclose only when all other options fail.

Source: Association Times