Perhaps you've been there and have experienced a
similar situation as a board member. Your homeowners association
has followed all of the requirements of notification to the delinquent
owner of the property, but this particular owner has failed to
respond to your requests to pay his past due assessments. You have
instructed the association's attorney to place a lien on the property,
but the owner still ignores your requests for payment. You have
contacted the attorney to send the owner a final demand to pay,
but there is still no response. What do you do next? It looks like
the only alternative you have may be to foreclose on the property.
The saga continues, of course. After all of the notifications
to the owner of the pending foreclosure action, the property is
finally sold at auction. There were no bidders at the foreclosure
auction except for the association . . . so the association purchased
the property for an amount equal to what it was owed. The association's
attorney sends a letter to the prior owner informing him that he
no longer owns the property and prepares a deed for filing at the
county records building reflecting the new ownership. The association,
though it would have preferred otherwise, now holds the asset.
What can the association do with this property? What
is the Board's responsibility? Will the previous owner be given
a chance to redeem the property? (In Texas, homeowners have the
right to redeem their property within 180 days of foreclosure,
so until that time is up, there remains the possibility that the
new owner by way of foreclosure may not retain the property even
if he wishes to do so.)
There are many questions that need to be answered
by an association's board of directors before and during this tedious
process. Does the Board want to contact the mortgage company to
find out the amount owed on the underlying first lien? Keep in
mind that the association lien is subordinate to the underlying
mortgage in most states and if the mortgage company decides to
accelerate the underlying note, the new owner may lose the property
through foreclosure just as the previous one did. In that case,
the association may have lost its ability to recover attorney fees
as well as the unpaid assessments by way of future resale.
Will the association seek to offer its new asset
for rent to the public? Throughout its ownership, the association
will need to take responsibility for the maintenance of the property.
That means that if the grass needs to be mowed, the association
must pay to have it done. It will also need to provide for insurance
on the property. Alternatively, will the association decide to
sell the property? If so, a real estate agent experienced in the
local market and without conflicts of interest should be engaged.
If the property is sold or leased, what are the tax consequences
to the homeowners association? It looks like a call to the association's
CPA would be a wise move. Meanwhile, costs associated with the
foreclosure keep adding up.
Regardless of what the association decides to do
with the home it acquired, the Board of Directors needs to establish
a policy regarding the foreclosure of such property. Like most
things in life, the chore of foreclosure - - given its many incidental
issues - - is not as simple as it may at first appear.
