The Mortgage Crisis: Foreclosure Rates Affect Associations

Many Associations are starting to feel the pinch, others the tight squeeze, that the mortgage and foreclosure crisis is causing on their Associations. Homeowners are not only losing their homes, but their neighbors are starting to feel the effects as well. Property values are decreasing and maintenance fees are going unpaid, causing Associations to dip into their reserves to pay routine bills. Community maintenance projects are being re-prioritized and some are put on hold all together. In some cases, other members are forced to pay higher maintenance fees to make up the difference for delinquent assessments in an effort to maintain the budget.

Large assessment debts create burdens on the associations and on the innocent, maintenance fee paying members. This burden has prompted many associations to increase the number of foreclosures filed against their members in efforts to collect what they can, and, if they cannot collect anything, to remove the member from the association in hopes of obtaining a new member that has the ability to and will pay their maintenance fees.

Recording liens for past due maintenance fee assessments has become increasingly important for associations. The lien creates a legal claim against the property that must be paid in full when the property is sold or refinanced. The liens are recorded with the County Recorder and serve as notice to the public that the owner owes money to the association.

Liens also serve to protect the association’s position and interest in the property. If the member attempts to transfer title or sell the property, a title company will pick up the lien by the association and the lien will be paid. It also protects the association in the event the member files for bankruptcy. While bankruptcies discharge debt, they do not wipe liens off of a property. A lien will also ensure that the association is a mandatory party to any foreclosure filed by a mortgage company or other lienholder, allowing the association to assert its interest in the property.

The decision to foreclose is never an easy decision for a Board. In most cases, it is difficult to make the decision to take a neighbor’s home from them. However unfortunate and difficult the decision, sometimes it is a necessary evil when it is in the best interest of the association.

It is also important to consider factors such as the amount of the mortgage on the members home in reaching a decision on whether to foreclose. The smaller the mortgage and the greater the equity in the home, the more likely the association is to collect some money as a result of the foreclosure.

However, sometimes there is no equity in the home, but the member is becoming such a drain on the association, that the Board will make the decision to file the foreclosure anyway, since the member is not contributing to the common expense budget and the association wants to have the court order a sale of the unit in the hopes of obtaining a new member that will contribute to the community.

The foreclosure process is unfortunately a necessary end for many associations. Even more so now many association members are finding themselves unable to maintain regular payments to their mortgage company or to the association.

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