Bank Owned Properties: What Can We Do?
Does your community have properties that are owned by banks? Unfortunately, bank owned properties have become commonplace in many communities due to the high number of foreclosures that continue to take place in today’s economy. These homes are likely vacant, with covenant violations (weeds and other maintenance issues come to mind), and most likely, assessments (and maybe even the superlien) have not been paid. These properties are certainly a frustration to both the Board and other homeowners, so what can an association do to resolve these problems?
The answer is simple: Foreclose! A bank is likely not going to pay what is due to the association until it is forced to do so (i.e., there is a closing or the association forecloses on its lien). With bank-owned properties, there is no mortgage on the property, and thus there is substantial equity in the property. The bank is not going to lose the property for an amount of six months of dues, so foreclosing on a bank for the superlien (and any unpaid assessments after the sale) is almost a sure thing. You know lawyers, we never guarantee an outcome! Even in the rare event that the bank does let the property foreclose, the association will end up owning the property free and clear!
We often get the questions, “Why spend money on attorney’s fees to foreclose when the bank will eventually pay? Can’t we just put a lien on the property and wait for the sale?” Sure, a board could choose to make that decision, but remember that board members have a fiduciary duty to ensure the association collects its assessments. Additionally, if a board does not treat bank owners in the same manner as non-bank owners, your association could be faced with a claim of selective enforcement.
Another option is a receivership. Receiverships are available options if the unit is vacant (likely with bank owned properties) or there is a tenant in the property. If the unit is vacant, once a receiver is appointed by the court, the receiver can market the unit for rent and collect rent payments from the tenant on behalf of the association. It is important to note that the unit must be in rentable condition before a tenant can be placed in the property. The receiver does have the authority to make a unit rentable, but the costs of doing so will be passed on to the association. Costs to make a property rentable can be relatively simple and inexpensive, like having the property professionally cleaned. However, the property may need more substantial repairs in order to be rented. For instance, if all the kitchen appliances were removed by the homeowner before abandoning the property, the receiver would need to replace them before renting to a tenant. Some changes can be very costly and may make receiverships less viable.
But what happens to the receiver’s tenant when the bank sells the property? The Protecting Tenants at Foreclosure Act answers that question and provides protections to tenants in foreclosed properties. It has been in effect since 2009 and currently is set to expire on December 31, 2014. This Act provides that the purchaser of a foreclosed property (many times, the bank) must provide all tenants with at least 90 days notice prior to eviction. It also provides that tenants must be permitted to stay in the residence until the end of the lease, with two exceptions: 1) the property is sold after foreclosure to a purchaser who will occupy the property as a primary residence; or 2) there is no lease or the lease is terminable at will. Even if the exceptions apply, the tenant must be given 90 days notice prior to eviction.
While bank owned properties can certainly be frustrating, there are options that boards can consider when faced with one, or many, of these properties in their communities. Our office can help your community address the problems created by bank owned properties. Please call us at 303.432.999 with any questions.