Adams Stirling PLC


When an association becomes the owner of a property via foreclosure where a lender still has a first mortgage in place, the association has two options, make mortgage payments to the lender or not make payments.

1.  Make Mortgage Payments. If the association intends to keep the property, it must do the following:

  • Insurance. The association's common area insurance may not cover properties acquired through foreclosure. Many condominium insurance policies will cover a unit acquired by the association while planned development master policies will not. Accordingly, the board must immediately contact the association's insurance agent and, if necessary, take out a separate general liability and property damage policy on property acquired by the association.
  • Senior Liens. To avoid foreclosure, the association must make timely payments to any senior lien holders.
  • Taxes. Although associations do not pay property taxes on common areas, they must pay taxes on any units/lots acquired through foreclosure.
  • Utilities. Utilities will need to be put into the association's name and then paid as they come due.

If the association does the above, it can safely rent the property and retain all rents. In addition, it can cast votes for those properties in membership elections. Finally, it can sell the property at some future date and keep any profits earned.

2.  Withhold Payments to Lender. If the association decides not to keep a property long-term, it does not need to make payments to senior lien holders or pay property taxes. That means that at some point the lender will foreclose and take ownership of the property at which point the lender will be responsible for paying any assessments as they come due.

ASSISTANCE: Associations needing legal assistance can contact us. To stay current with issues affecting community associations, subscribe to the Davis-Stirling Newsletter.

Adams Stirling PLC