As many banks are completing their foreclosures against their borrowers that purchased homes in communities with homeowner or condominium associations, such banks are frequently becoming the legal owners of such homes. At the moment in time the bank takes title to the home (whether through a completion of its foreclosure and the issuance of a certificate of title in the bank’s name or through a deed in lieu of foreclosure from the borrower), the bank becomes the legal owner of the home and, as such, becomes liable like every other owner in the community for the obligations that come along with home ownership in an association controlled community. Two of the most important aspects that the new bank owner needs to comply with are paying maintenance assessments no later than the due date and keeping the newly acquired home up to the maintenance standards that are imposed by the association.
Some associations wonder whether they need to wait until the bank sells the home to an ultimate purchaser of the bank’s REO sale to get paid its assessments. The clear answer is that once the bank takes title, the bank is an owner and owes not only the assessments that are due under any cap that may be afforded to the bank under applicable statute, but the bank is also required to pay all assessments going forward as they become due. If a bank fails to pay the amounts that are due under the statutorily afforded cap (if applicable), the association is entitled under statute to then place a lien on the bank owned property, which lien secures not only the past due assessments, but also the late fees, interest and reasonable attorney’s fees incurred in connection with the collection efforts against the delinquent bank. After the applicable time period passes (30 or 45 days for a condominium or HOA, respectively), the association is then entitled by statute to foreclose its lien against the bank for the past due assessments, late fees, interest and reasonable attorney’s fees. If this occurs, it means that the association could end up owning the bank owned unit free and clear for rental or a subsequent sale at which the Association would in almost all cases be made whole.
As anyone that has ever owned property knows, electric bills, insurance bills, lawn maintenance, etc. need to be paid when the services are performed or billed. Associations need money on an ongoing basis to pay their day-to-day operating expenses and cannot wait six months, or in some of the most egregious cases, more than two years, for a bank to pay its assessments while the bank is looking for a buyer. If the bank fails to pay assessments as they become due, the association needs to be diligent in pursuing collections against the bank and commencing a foreclosure action against a non-paying bank just like it would against any other owner. If the bank still fails to timely pay the assessments, and the foreclosure action is filed and the property goes to sale, not only will the association be paid all past due bank assessments as well as any permitted late fees and interest from the purchaser at the foreclosure of the bank owned home, but in some cases, the association, if there is no purchaser at the foreclosure sale, could end up owning the unit that the bank previously foreclosed on free and clear of the bank’s mortgage. At such point, the association could either rent the now free and clear home or sell it to recoup the amounts that it previously did not receive from the delinquent bank. The alternative is for the association to sit and wait for the bank to find a buyer and during such time, increase assessments on the paying owners to pay for the costs that are accruing; however, not only is this not equitable to the homeowners that are paying, but under law, all owners are to be treated equally. If the association enforces collections against an owner for not paying his or her assessments, then the association should seek collections against a bank that takes title to a unit and is not paying. Even though it is a bank owned unit, the bank is still an owner and collections should be pursued just as for any other owner.
Michael A. Furshman, Esq. Association Law Group, PL., 1666 Kennedy Causeway, Suite 305, North Bay Village, Florida 33141. Phone: (305) 861-4036