What Are Some Common Issues That You See In Community Associations?
One of the issues that pop up very frequently in community associations, whether they be a homeowner’s association or condominium association, deals with the foreclosure of properties within that association and there are a lot of issues involved when you are dealing with condominium and HOA associations and foreclosures but there are two subcategories that I would like to talk about and one of those is where the association itself becomes the plaintiff and files suit against a member to foreclose on a lien that’s been placed on the home and then ultimately you get a final judgment and then, have the house put up for a judicial sale. The second subset is where a mortgage company is actually the one that has instituted the foreclosure action and the association is listed as a defendant along with the member and kind of how all that interacts or interplays with itself.
So, in the first subsection where you have the association that is contemplating or actually going through the foreclosure process. A member, typically, not always, but the great majority of the time, it’s for delinquent assessments. So the association may or may not have sent out a demand themselves and they have sent out a demand for a property manager that the member, for whatever reason, has either ignored or rebuffed those demands. So then, what happens is that you look under the statute and for an HOA, it’s required that a demand letter be sent out and typically it’s done by the attorney. Sometimes it’s not but it should be because they have to be done correctly or the association is going to get sued, facing a lawsuit. Basically, what the demand says is that here is the breakdown of the fees that you owe. So you owe regular assessments. There may be special assessments that you owe, interest on the payments that you would make, there are late fees that have accrued, there are attorney’s fees and here is the bottom line of what you owe and you have 45 days to pay this amount.
If you don’t pay this amount within 45 days, then the association is going to move to the lien aspect of it and it’s kind of interesting that once that demand is put out, I can’t tell you how many calls I’ve gotten from associations that I’ve represented and members that have come to me and said that my association sent me this demand letter that my attorney has. How can they do this because my house is homestead? Homestead exemption, in the state of Florida, does not prevent the association from foreclosing on a lien for delinquent assessments. So just like, if you don’t pay your mortgage, even though it’s homestead, the mortgage company can foreclose on your property. So, just to clarify that because it is kind of a common misconception but once that 45 days is up, if that’s paid or if sometimes, there is a negotiation. Sometimes that member or the member’s attorney will call up the association’s attorney and say okay, you have an amount for $10,000 but we think that your attorney’s fees are a little excessive and we are disputing that your ledger is correct at this point and if you go through a foreclosure, it’s going to cost you a great deal of time and money.
So why don’t we settle for 60 cents on the dollar and we are getting $6000 and $10,000 sometimes. There are negotiations back and forth, sometimes the association accepts it and sometimes they don’t and oftentimes the demand is just ignored. If that happens, then another letter is required under the statute and it says that the association is in the process of filing a lien and you have 45 days to pay this amount which obviously now has gone up because now you have more attorney’s fees, more interest and probably more late fees and probably more missed maintenance assessments so now you’ve got a different amount that you have to pay and you have to pay that within 45 days or we can foreclose on the lien and typically you enclose a copy of the lien to show them that the association is serious and there is a copy of the lien that needs to be filed.
If it’s paid off, then the lien, if it’s been recorded, gets released in the ledger is hereabout to show that there is zero balance and everything is paid off. If there is a settlement, then the same applies. If, they either ignore it or they fight it, the numbers, that is, then the association has a right to file a foreclosure action. A lot of times, what happens is, it is followed alternatively so there will be account for the foreclosure on the property and account for monetary damages. So the association can say you owe $20,000 and we file to take your house and also file for $20,000 and if at some point, it doesn’t work out, the association are going to have to pick which way to go, a judgment or if they are going to go the foreclosure route. Then there is a procedure called a summary judgment and then they get a judgment that way. If they don’t go to trial, they are not jury trials.
If the judge decides that the association are entitled to a final judgment, then that final judgment is set for a single foreclosure sale date and anybody can bid on those. What happens is that the amount of the final judgment, let’s say that $20,000 now turned into a $30,000 judgment by the time you get there. If nobody bids over the $30,000 then the association has rewarded the property through what’s called a certificate of title which acts as a deed through the property. Now that the association owns the property, they can rent it out or they can sell it pretty much to everybody they want to within the bounds of what their governing documents are and what the statutes allow for. So that’s kind of what happens on a member being foreclosed on by an association. One thing that is a little different from this HOA as I stated, you have to have 2 letters for 45 days, in a Condo, you have to have one letter for 30 days and then you can take the property.
The other thing is that in an HOA, the member can make what’s called a qualifying offer so that after a lawsuit has been filed, if a member files a response and says we are giving you an offer and basically says we are going to pay out the amount of the lien plus any kind of amounts that have incurred from the date the lien was recorded. What that does is it stalls the foreclosure proceeding for 60 days. So if that’s paid off then the suit is dropped and if it’s not paid off then the association can go ahead and move forward with that. But it’s not really a free pass because then the member is going to incur more attorney’s fees as well if they choose that route to try and stall so that’s kind of a dangerous tactic to take. It’s usually when people don’t understand that how serious the association is taking it and all of a sudden, there is a lawsuit and they go we don’t want to lose our house. We are going to pay it.
So they get a qualifying offer and they can just pay it and the lawsuit before it goes any further and racks up too many attorney’s fees and gets a judgment against them and it goes on the judicial sale block. The second subset I talked about was for mortgage foreclosure actions and what happens is because the association has a claim for delinquent assessments, they will actually be listed as a defendant in the lawsuit as well as the person that owns the home or the mortgage owner. So the mortgagee files the lawsuit, lists the association and there is an interesting part that is called safe harbor. So under most declarations and under the statutes, the way that it works is that if the bank or the lender files a lawsuit, if the bank or the lender doesn’t assign their rights to a promissory note, the mortgage or doesn’t assign their titles under those and they are the ones that have obtained final judgment, then they go to the sale and purchase the property at the sale and the other stuff that they have to do is they actually have to obtain a certificate of title because sometimes the bank in between will shift the deed, transfer the deed for the actual sale, I should say assigned their rights as they paid for the sale of the property to another party, so it’s actually like a sister company.
I had one that was recently done that way and so a different company took title to that. The way it works is that if a bank is entitled to the safe harbor provision so they file the suit, they got the final judgment in their name, they purchased the property or nobody paid over what their final judgment was worth, then they get a certificate of title that’s issued in the same name and there are other requirements such as you have to do it initially and first complaint and you have to make sure that the association has been listed in that firs complaint. If they follow all those rules, you could have a scenario where the association is owed $50,000 in assessments but the bank only has to pay either one year’s worth of assessments or one percent of the initial mortgage amount. So it’s a lot less than what the association is actually owed. So it’s a provision to protect the banks.
So it’s something the associations, most of them are aware of, but people that are on board need to be aware that those things exist and that’s why it’s really important to have an attorney because I have found ways that show that the bank or the lender did not actually follow all those rules so they are not entitled to that safe harbor and then you will have scenarios too where the property purchasers will come in and say you are entitled to the protection of the banks as we step into the bank’s shoes. Sometimes the declarations will allow that, more often than not they don’t and so the new person that came in to buy it has to pay the entire amount $50,000 are non-exempt as opposed to the one percent for the one year’s worth of assessments. So those are the typical things that come up in foreclosure actions with associations and if anybody has any more questions on those they are free to call me at the number on my website.
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