LIEN WIPED OUT BY BANK?

QUESTION: The board foreclosed on a unit because of unpaid assessments. The trustee sale produced no buyers because the unit was "under water." Apparently title to the unit transferred to the association. Because there exists a $345K mortgage on the unit, the bank will foreclose. If the bank forecloses, will the bank wipe out the association's lien and its right to the unpaid assessments?

ANSWER: You don't have to worry about the bank's foreclosure wiping out the association's lien and right to unpaid assessments--that already happened. When the association foreclosed, title transferred to the association (subject to the delinquent owner's 90-day redemption rights). Once title transfers, the association's lien is extinguished because it now owns the property. Its collection rights were also extinguished per the single action rule. The board cannot take any further action against the delinquent owner except to evict him/her from the unit once the redemption period ends.

Existing Mortgage. At the trustee's sale, the association took ownership of the unit subject to the $345,000 mortgage. Because the unit has no equity, there is no economic value to the association in making payments to the lender. This means the lender will ultimately foreclose on the unit. Until then, the board could put a renter in the unit to help offset the lost delinquent assessments. Once the lender forecloses, title transfers to the bank and it starts paying assessments to the association.

More Foreclosures. There appears to be another wave of bank foreclosures on the horizon. That means associations will continue to suffer from delinquencies into the foreseeable future. Accordingly, boards need to be diligent about collecting assessments.

5% SPECIAL ASSESSMENT

QUESTION: Our monthly dues are $50.00 per month. We want to do a $25,000 special assessment which represents 7% of our operating budget for 2010. We will set up a 5-year repayment plan which will make the special assessment less than 5% for each of the five years. Do we still need a vote by the membership?

ANSWER: Yes, you need membership approval. Even though payment is spread over 5 years, the total assessment exceeds the 5% limitation set by statute. Therefore, it needs membership approval. In the alternative, the board could approve a smaller special assessment each year for the next five years.

MILITARY DELINQUENCIES

QUESTION: An owner in our association is on active military duty. He is behind in his HOA dues and is making no effort to make any payments. He is stationed in our town and lives in our association. How do we get this guy to pay?

ANSWER: The Soldiers’ and Sailors’ Civil Relief Act, which protects active duty military personnel, was updated in 2003 and renamed the Servicemembers Civil Relief Act. It protects military personnel on active duty but is limited to protecting them from eviction if their monthly rent does not exceed $1,200. Since the person you described is an owner, the board may do the following: (i) suspend privileges, (ii) suspend voting rights, (iii) lien the unit to secure the association's debt and then start appropriate collection actions.

Temporary Stay of Enforcement. However, service members or dependents may, at any time during their military service, or within 6 months thereafter, apply to a court for relief of any obligation or liability incurred by the service member or dependent prior to active duty or in respect to any tax or assessment whether falling during or prior to the service member’s active military service. The court may grant stays of enforcement during which time no fine or penalty can accrue.

Payment Plan. If you use a foreclosure company that specializes in condos, they should be familiar with restrictions related to military personnel. I'm a huge supporter of the military, if you can work out a payment plan with him, you should try to do so. However, if he is unable or unwilling to meet his obligations, the board has a duty to protect the association's interests.