Reader Questions - Foreclosed Homes

Dear Kelly,

I am on the board of an association. We have had a few units go to foreclosure that the homeowners owed past due monthly association dues. They just moved out. We voted to lien the properties and file small claims against the homeowners. One unit was foreclosed and the bank resold it to new owners. Shouldn’t the bank have to pay us the lien amount?

Our manager said that the bank did not have to honor that commitment. I find that difficult to believe. We are a small association and cannot afford to be forgiving thousands of dollars in liens. I think the association just doesn’t want to be bothered trying to collect. What is the point in liening a property if we cannot collect the past due monthly dues?

Can you clarify this for me? Thank you,

R.H., Irvine

Dear R.H.,

When banks foreclose upon properties subject to a mortgage recorded prior to the HOA’s lien, the HOA lien is extinguished by the completed foreclosure. The bank is not responsible for pre-foreclosure assessments, but is responsible for the assessments which become due while it owns the property.

However, the bank foreclosure only wipes out the lien, not the former owner’s liability for the assessments. This is one of the situations where non-judicial foreclosure, while popular, becomes less helpful as an enforcement tool. In situations where the property is worth less than the total of mortgages and liens, a completed non-judicial foreclosure can be a disaster. If the HOA takes ownership by non-judicial foreclosure, the ability to pursue the debt in court is extinguished. So, the HOA has a property which is worth nothing, and is barred from court action.

If the HOA has not completed a non-judicial foreclosure, and the former owner has not filed bankruptcy, the HOA can pursue the debt in a court action.

Best to your HOA,
Kelly

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®.