ASSOCIATIONS SHOULD BE AGRESSIVE REGARDING FORECLOSURES
Russell Robbins; Mirza, Basulto & RobbinsPrintEmailEDITED Wed, 01 September 2010 06:10:57 EDT
Community Associations’ best weapon against mortgage foreclosures is knowledge. Associations should review the below diagrams and consult this while discussing strategy on the foreclosure actions (both mortgage and lien).
The Association should not interfere with the bank once they obtain title to the unit, as that sale will result in a unit owner who will be able to afford paying the maintenance in the future. To better protect itself against the losses caused by the banks, the Association has to be proactive.
The attached diagram labeled “Association Timeline” illustrates the anatomy of dual foreclosure actions. Unfortunately the Association has no one to blame but themselves. Generally they are the first to know that a unit owner is in trouble and will be defaulting. Our internal office statistics show that the deadbeat unit owner will miss at least three (3) maintenance payments before they miss their first mortgage payment…thus the Association will know first that a unit will be heading into foreclosure.
The unit owner will then miss at least six (6) mortgage payments (typically) before the lender will foreclose. In today’s market this can be lengthened by the unit owner applying for a short sale or loan modification. On average the mortgage foreclosure will last approximately two (2) years from date of filing, and if you factor in the additional nine (9) months of maintenance delinquency pre-foreclosure, the average mortgage foreclosure will cost the Association at least thirty-three (33) months of maintenance. Florida Statutes states that the Association is thus entitled to recover the ‘safe harbor’ amount of twelve (12) months maintenance or one percent (1.0%) of the original mortgage debt, whichever is less. That will result in at least a twenty-one (21) month loss for the average mortgage foreclosure…using conservative math.
What we suggest instead is that the Association takes an aggressive stance with regards to foreclosures and attempts to beat the bank at ‘their own game’. Follow this:
If the Association begins collection on the matter from the beginning (through reminder letters from the management company) and turns the account over to its attorney by the second month of delinquency, the attorney can send out the first demand (commonly referred to in our office as Notice of Intent to Foreclose). Per Florida Statutes we must give the unit owner thirty (30) days to pay the amount outstanding before we file a lien. On the thirtieth day (approximately) the law firm sends out the second demand (commonly referred to in our office as the Notice of Intent to Foreclose, which includes a copy of the recorded claim of lien). On the sixtieth day (approximately) the law firm can begin foreclosure. Thus, a unit is likely in Association lien foreclosure within four (4) months of the initial delinquency.
Uncontested association lien foreclosures are over quickly. The only thing that can slow down (or stop an association lien foreclosure) is a bankruptcy (chapter 7 or 13). Our firm routinely completes our uncontested association lien foreclosures within ninety (90) days from service on all defendants. This means that the Association at such time typically has a Summary Final Judgment in its favor, and a sale date entered within thirty (30) days from the date of the judgment. The reason these cases are over with quickly, is that less defenses are afforded to the defendants. In a typical mortgage foreclosure, the defendant can raise defenses of validity of the debt, ownership, Truth in Lending Act (TILA), Fair Debt Collection Practices Act and Real Estate Settlement Procedures Act (RESPA) violations. These defenses are not afforded to defendants in association lien foreclosures. The Condominium (or Homeowners Association) is a covenant running with the land that existed prior to the purchase by the current owner, and each unit owner equally pays maintenance as other unit owners. Most foreclosure defense attorneys will routinely advise their client to timely pay their Association, as it is easier to remain current than battle the Association in a foreclosure action.
So…following the logic…case transferred to Association counsel within two (2) months of delinquency, prerequisites to litigation (Notice of Intent to Lien / Notice of Intent to Foreclose / Claim of Lien) are met within four (4) months of delinquency, litigation completed within eight (8) months of delinquency, Certificate of Title and Writ of Possession issued within ten (10) months of delinquency.
At our firm, net out of pocket to the Association for attorneys’ fees and costs is roughly Three Thousand Dollars and Zero Cents ($3,000.00). At such time the mortgage foreclosure has just begun (remember, three months of delinquency to the Association, followed by six months of delinquency to the lender, equals the earliest that the lender will foreclose). The Association will hold title to the unit for a minimum of two (2) years in a typical mortgage foreclosure.
If the Association rents the unit for roughly $600.00 per month (using this figure since most Associations charge $300 per month for maintenance), the Association in the first twelve months will recover $3,600.00 of the past due delinquency ($3,000.00 = $300.00 x 10 months) and a portion of the attorneys fees paid to our firm. In the second twelve months the Association will recover an additional $3,600.00 ($2,400.00 will be applied to the remainder of the attorneys’ fees) and still net the Association a profit of $1,200.00.
While the Association has title to the unit, our firm will aggressively defend the Association’s rights under the mortgage foreclosure, which could extend the mortgage foreclosure for an addition twelve (12) to eighteen (18) months. This will be additional profit to the Association. At the time the bank finally completes its foreclosure, it will be liable for the ‘safe harbor’ limit, and all attorney’s fees and costs that were expended by the Association, thus resulting in additional monies to the Association.
Unfortunately, the only way to win is to beat the banks at their own game. The above is an example on how our firm evaluates the mortgage foreclosures. The next time you decide to give an owner a break because they are having difficulty making ends meet, understand that all other unit owners will now have to bear the burden of carrying that unit owner. However, if the Association aggressively pursues foreclosure, it will come out ahead.
This document is intended to be used for general education and information purposes only. Information may not reflect recent developments and may contain certain errors and omissions. Publisher and Mirza, Basulto & Robbins do not warrant or guarantee that contents of this document are applicable. The contents herein are not intended as substitute for obtaining advice from an attorney, accountant, insurance agent or any other professional.