Too often, a home will be abandoned but not foreclosed for long periods of time. Three, six or even twelve years may pass before the bank moves to foreclose, leaving the homeowner association without the needed funding for the most basic services.
While an Association may foreclose on unpaid assessments, the entire process takes six or more months. For banks, Georgia has one of the fastest non-judicial foreclosures at 37 days: An Association will incur five to ten thousand in legal fees, only for the bank to immediately foreclose afterward. The Association’s fees in this instance are often unrecoverable.
To complicate matters, frequently fraudulent deeding of property occurs. Combined with spurious bankruptcy filings, homeowners can string out the foreclosure process by five years.
Often, an Association has no idea of a fraudulent deed until discovered during a bank foreclosure, when the Association has already incurred time and expense pursuing a debtor. To avoid this, the homeowner association should be included in bank foreclosure suits (for notice purposes only), so the association is aware of the situation well in advance.
In some instances the lender takes possession of a home without
actually foreclosing. It sends in a
vendor to change locks, pay property taxes, winterize plumbing, etc. Without an actual foreclosure, the bank is
not liable for assessments except in a handful of states
operating under “super
lien” laws. Unless the Association is constantly
pulling tax records, it may not discover this situation for years. To combat this, one item being contemplated
is for the Association to file an abandonment claim against the lender for failure
to maintain (homeowner assessments, landscaping, etc.). This potentially leads to the Association
gaining title to the property, with legal costs a recoverable expense against
the lender.
Once a home has been foreclosed, it is difficult for the
Association to track down the lender representative tasked with making
assessment payments. Lenders often
outsource property maintenance to third party companies, making things more
difficult for the Association. It is not
uncommon for an Association to wait until the bank-owned property sells to a
new homeowner, before collecting unpaid assessments from the lender.
If neither the bank nor its servicing agent noted that the
home is part of a homeowner association, assessments may not be collected at
closing, leaving both the bank and the purchaser jointly liable for the
delinquency. This is not a good
introduction for the homeowner to the community.
Some servicers hired by lenders have become proactive in tracking down homeowner association representatives, setting up payment plans. However, the banking system is so fragmented that two different servicing agents are assigned the same home, with both paying past due assessments. While this might sound ideal for the Association, it creates problems when the bank attempts to collect overages a year after the home has sold. The new homeowner may believe the additional funds applied to his account are rightfully his, creating needless conflict.
Some servicers hired by lenders have become proactive in tracking down homeowner association representatives, setting up payment plans. However, the banking system is so fragmented that two different servicing agents are assigned the same home, with both paying past due assessments. While this might sound ideal for the Association, it creates problems when the bank attempts to collect overages a year after the home has sold. The new homeowner may believe the additional funds applied to his account are rightfully his, creating needless conflict.
The banking industry requires a process that, prior to
foreclosure, will accurately identify homeowner association contacts. Similar needs for handling property taxes and
hazard insurance are already in place, but the challenges of connecting with
350,000 homeowner associations, many of them self-managed, are formidable.