Foreclosures by Community Associations to Collect Delinquent Assessments
Community Associations Institute (CAI) endorses legislation that provides a fair and equitable foreclosure process that protects homeowners, property values, and the financial health of community associations by ensuring foreclosures by community associations are completed in a timely and reasonable manner.
CAI supports the right of community associations to both judicially and non-judicially foreclose units and lots for the purpose of collecting delinquent assessments and minimizing future delinquent assessments.
CAI supports and advocates for a fair and equitable foreclosure process by community associations that: (1) provides timely notice to owners and gives owners a reasonable opportunity to cure any default prior to foreclosure; (2) allows a reasonable amount of time for owners to cure a default as the foreclosure proceeds; (3) promotes reasonable expenses and costs of the foreclosure process; and (4) provides notice to all other lien holders of record (or required by law) so that lien holders have the right to either exercise their right to foreclose or participate in the process.
To ensure legal and timely foreclosure, governmental housing finance regulations should preserve lien priority for association assessments to protect the financial stability of both homeowners and associations. Mortgage servicing standards specific to housing in a community association must be improved so that a property in foreclosure by the community association is continually maintained by the owner of record or the mortgage holder/servicer, with association assessments being paid in a timely manner as well.
Lenders that acquire property by foreclosure must preserve, protect, maintain, and insure such properties according to all applicable association requirements at all times, including during any period of abandonment or vacancy. Lenders should also provide the association with a single point of contact to facilitate prompt response and curative action for all violations of the community association’s covenants and rules and regulations, including deed restrictions pertaining to use the lot or unit.
CAI endorses legislation that provides community associations with an assessment lien priority as defined in the Uniform Common Interest Ownership Act.
BACKGROUND
Countless Americans lose their homes when lending institutions are unable to collect mortgage payments. The decision of a community association to foreclose on a homeowner must be considered critically. CAI supports the use of foreclosure after other reasonable attempts have been made to compel owners to fulfill their obligations to the association.
Unlike mortgage lenders, most community associations are not able to reject purchasers based on credit worthiness. They must accept purchasers that may become debtors notwithstanding the ability to pay.
This, along with other factors, may lead to situations where units and lots are sold to people who either cannot or choose not to pay assessments.
The failure to pay assessments in community associations leads to a particularly unfair result because the expenses of the association must be paid regardless of the delinquency. This effectively means that other owners in the community pay the delinquent owner’s share of the expenses while the delinquent owner (and that owner’s lender) continues to benefit from the maintenance of values realized as a result of those expenses. Moreover, numerous delinquencies may materially impact the financial condition of the community association and result in a reduction in the value of all homes in the community. In short, delinquencies must be addressed to minimize this unfairness and the potentially cumulative negative effects from nonpaying owners.
Associations need the discretion to determine the most effective collection technique for a particular delinquency, which may include payment plans, lawsuits, foreclosures, or other lawful collection methods. Notwithstanding various methods of collection, judicial and non-judicial foreclosures are necessary and cost-effective methods of collecting assessments.
Importantly, due to debtor rights laws in some states, foreclosures may be the only available tool to effectively recover delinquent assessments. This is particularly applicable to abandoned homes and homes occupied by owners who intend to stay as long as possible without paying any assessments. In addition, this is exacerbated when a lender fails for a protracted period of time to foreclose a mortgage in default and there is insufficient equity to satisfy the association’s lien.
For these reasons, CAI supports the right of community associations to initiate foreclosure proceedings to collect delinquent assessments so long as those proceedings provide fair and equitable notices, procedures and opportunities for the owner to cure, and for other lien holders to exercise their right or participate in the foreclosure process to the extent the law provides.