5 Steps to Minimize the Effects of Foreclosure in Your Community

According to a recent study, Colorado ranked 10th in the nation for its foreclosure rate.  One in every 438 homes in Colorado is in some stage of foreclosure, as compared to the national average of one in every 497.  As I read this statistic, my thoughts naturally turned to the community associations that we represent and how this affects them.  Obviously, the foreclosure of a home or a condominium can affect a community in a number of ways, chiefly from a delinquency and a covenant enforcement standpoint.  There are many steps that your association’s board of directors can take to minimize the effects of foreclosure, however.  Here is a brief list:

1. Foreclosures are scary.  But we tend to be less scared of something when we know more about it.  Boards should make the effort to learn as much as they can about the foreclosure process.  Take advantage of the free education programs presented by HindmanSanchez, including online webinars.  Or, ask your attorney to appear at a board meeting to discuss the foreclosure process and the ways you can protect your association’s interests.
2. File your liens.  When an owner becomes delinquent, record a lien.  If the property has an ongoing covenant violation, record a notice of that violation.  Liens are intended not only to give the owner notice of the problem, but to put third parties on notice as well.  Make sure that your lien has the most current contact information available, so that foreclosing parties send their notices to the correct person (manager, board member, attorney, etc.)
3. Know your rights and exercise them.  While a foreclosure will extinguish your Association’s assessment lien, this does not mean your association has no remedies.  You are entitled to six months worth of past due assessments (the “superlien”).  Your Association can redeem its interest in the property and obtain title. 
4. Don’t let the bank get away with not paying.  In the event that the bank ends up owning the foreclosed property, don’t forget to treat them like you would any other owner.  If the bank is in violation of the covenants, fine it.  If the bank is delinquent in the payment of assessments, send it delinquency notices and demand letters.  If need be, the Association can even bring a foreclosure action against a delinquent bank, and such actions almost always end in the Association getting paid in full, including attorney fees.
5. Pursue the former owner.  Don’t forget that the owner remains personally liable for his/her debt regardless of the loss of their house.  In certain cases, the former owner may still be working, and may have some assets that can be used to satisfy the debt.  A judgment entered against an owner for the past due assessments could be collectable.  Perhaps it may not be immediately collectable, but judgments are valid for at least 6 years in Colorado.  So if you keep informed as to the debtor’s whereabouts, you may be able to collect somewhere down the line.

For more information about foreclosures, please contact your community association specialists at HindmanSanchez, P.C.