Pursue Foreclosure Carefully

Common interest development associations are alliances of owners agreeing to share a tract of property and share the control and costs of that property. That sharing of expenses depends upon the regular payment of assessments, the lifeblood of every such association.

California law provides a powerful tool to compel owners to pay their part of the association’s shared costs – the ability to take away someone’s property. Foreclosure is the power to take someone’s property away to satisfy a debt. Most owners understand that, if they do not pay their mortgage, their bank can foreclose. Unfortunately, many owners do not understand that their association can do the same regarding delinquent assessments.

Associations can foreclose without court supervision (non-judicial foreclosure), or as part of a lawsuit (judicial foreclosure). The foreclosure process cannot begin until the owner is at least $1,800 or one year behind in their assessments, whichever happens first. (Associations can record liens or pursue money in small claims or regular court without waiting for that).

Foreclosure should be pursued only with careful consideration of the risks, costs and impact upon both owner and association. News stories abound of owners losing their homes amid alleged abuse of the process. Certainly the most notorious was that of the Radcliffs in Northern California, who lost their home in about 2002 over an arrearage of $120. They regained their home after a lawsuit, and major legislative reforms of the collection process ensued.

The threat of foreclosure by recording a lien compels most owners to bring their account current. However, when the threat does not work, foreclosure should not be automatic, but pursued only after careful consideration of this remedy as the association’s last resort. Before proceeding to spend association funds to take someone’s property, the board should consider the options and consequences of each with its attorney.

Is foreclosure desirable? The property may be so encumbered by mortgages and other liens that there is no reason to take it. The association could find itself in the same situation as its former member – paying expenses on a worthless asset, wasting money and worsening its problem. Therefore, balance the probable value of the property against the known liens against that value.

Before completing a foreclosure, consider the costs of selling the property (commissions, escrow fees), evicting the occupants, and the insurance and other costs of ownership. If these costs eliminate the property’s net equity, foreclosure might be a bad idea.

Some foreclosure companies argue that foreclosing on valueless properties still has value, because it will speed up the bank’s foreclosure and bring in a new assessment paying member sooner. This may or may not be true. Nobody can guarantee when the bank will complete its foreclosure, wiping out the association’s ownership or its lien. Before foreclosing, make sure that it is truly in the association’s best interests.

Watch out for situations in which the homeowner does not respond to save a property with substantial equity. There may be something else involved – the owner may have emotional or health issues, or may not understand that the law allows foreclosure. In such cases, explore whether reasonable alternatives exist – try not to take the home unless there really is no other reasonable choice. Foreclosure is not an opportunity – it’s a last resort.

Written by Kelly G. Richardson

Kelly G. Richardson Esq., CCAL, is a Fellow of the College of Community Association Lawyers and a Partner of Richardson | Ober | DeNichilo LLP, a California law firm known for community association advice. Submit questions to [email protected]. Past columns at www.hoahomefront.com. All rights reserved®.