Foreclosure Trends

Resource Topic: 
Litigation
Foreclosure
By: Brianna L. Schaefer

“A new trend has surfaced as a result of numerous homeowner associations being fed up with late dues and maintenance bills largely in part to delinquent owners” writes Timothy Kingcade, “the number of HOA foreclosures is climbing as homeowner association boards are taking matters into their own hands”. This headline could very well have been ripped out of just about any local Colorado newspaper.

With increasing frequency, homeowner associations are foreclosing on some of the nation's largest banks after the lenders fail to pay thousands of dollars in maintenance fees on repossessed properties. The foreclosure filings are a growing trend as associations are becoming more aggressive in going after the delinquent fees that have crippled HOA budgets during the housing bust. And lenders are no exception.

Many homes that have previously been foreclosed on by lenders are now facing a second round of foreclosures due to unpaid homeowner association fees. In an interesting twist, many of America’s largest banks are now experiencing the other side of a foreclosure case.

These types of cases are seen as low risk to associations. Foreclosing an assessment lien on a property owned by a bank means that the asset you are leveraging has 100% equity. Typically, initiating such a foreclosure will result in a quick payment by the bank.

When an association chooses to foreclose its lien, the goal is to motivate payment from an owner. Likely this owner has been delinquent for a substantial period of time and “traditional” collection methods have proven unsuccessful. Associations use foreclosure as a last resort in an attempt to elicit payment…but what if payment isn’t forthcoming? This is another emerging trend. As the number of foreclosure filings by homeowner associations increase, so do the number of properties that associations actually end up owning through the process. A growing number of communities have properties that are owned by the association as a result of its own foreclosure.

While initially alarming, this result isn’t necessarily bad. When a homeowner association forecloses and takes title to a home, the idea is that the board will be able to rent it out until the bank forecloses on its deed of trust. With banks taking years to foreclose on some properties, this allows for the homeowner association to potentially collect thousands of dollars in rent, fully recoup the delinquency on the property, and even make a profit in some instances. In communities where renting is not a viable option, some associations have been successful in deeding the property over to the bank shortly after taking title. This eliminates the time and expense associated with the bank completing its own foreclosure, and obligates the bank to begin paying dues immediately. Associations could also sell the property, and keep any proceeds left after the deed of trust is satisfied.

Associations considering foreclosure as a collection tool should consult with legal counsel who can help identify whether it is a good option in individual cases. Please contact a HindmanSanchez attorney at: 303.432.9999 if you have questions regarding the foreclosure process.