The motive behind the Association filing a foreclosure against a delinquent owner is usually for two conjunctive purposes: 1) get the delinquent owner out, and 2) get a paying owner in. However, the vast majority of foreclosures result in the lender purchasing back the property at sheriff’s sale. Often times, when the lender purchases a property at sheriff’s sale, the maintenance fees billed out by the Association are not paid for several months.
Despite billing the lender, sending collection letters, filing liens, and sometimes even filing foreclosures or small claims actions, rarely does a servicer of bank-owned property respond to any of these actions until it is time to close. Additionally, certain servicers refuse to pay any legal fees for collection—they essentially leave it to realtors to come up with the difference by subtracting it from their sales commission.
So how can we remedy the situation? Essentially, the bank will pay at its own whim. Whether the Association wants to spend money fighting/going after the bank or waiting until closing depends on the Board’s decision. At the very least, it is important that the Association place a Certificate of Lien upon any bank-owned property in accordance with the Association’s collection policy. This will ensure that when the property goes under contract, the title company should discover the lien, and contact our office for a payoff figure based on the anticipated closing date.
The decision to move beyond a lien filing in collecting against a lender is not easy. Although the Association will usually get paid by the lender in the end, some Associations may feel a pinch by not being paid on a regular basis and having to account for the shortfall. Keep in mind, that to file a foreclosure, it will cost at least $1,500 to begin the process. Filing fore-closure may not push the lender to pay. So if your Association is truly cash-strapped, it is unlikely that you want to expend funds to file a foreclosure, cut into your operating budget, and essentially be in the same position you would have been when the property closes in a few months—except the budget is less the $1,500 or so spent on filing a foreclosure.
So while the Association’s motives in filing foreclosure on a bank-owned property may be admirable, probably only two parties stand to truly benefit from this action—the attorneys billing the fees and the title company billing for judicial title reports. And let us assume that we actually do proceed all the way to sheriff’s sale through this foreclosure against the lender (highly unlikely). Even if the property does go through to sale, most Associations have trouble finding investors or bidders with enough cash to buy at property at sale. While the unit ranging with a starting bid of $5,000-$15,000 might not be an issue for investors, higher priced units may have trouble selling at sale.
In short, of all the years of our representations of community associations, thousands of foreclosures, there has never once been a bank-owned property that has not been sold through the real estate market, facilitating payment for the Association.
What will ultimately improve collections against a lender? Here are a few tips to improve your collections against a lender: