Foreclosure by Condo Association

[Ric232]

What is the name of your state? FLORIDA

My condo association has filed a Liz Pendens against an owner that owes about $7,000 in condo assessments. The owner originally bought the condo with two mortgages which total 100% of the purchase price of $380,000. The current value at a normal (non-foreclosure) sale would be about $300,000. The condo assessment lien is junior to the two mortgages. The owner is apparently not delinquent on the mortgages. What is the most likely scenario if the condo assoc proceeds with foreclosure on its lien? Does the bank foreclose even though the borrower is current on its loan? I realize that the condo association's lien will get wiped out in most any scenario.

Thanks.

[LindaP777]

Foreclosing on a $7000 lien for a property that is mortgaged at more the the market value is crazy and you will never get your money. File the lien, sit back and wait. The lein will have to be paid before the property is sold.
A bank will not foreclosure if the property owner is current of the mortgage (think about it, why would they?). If the owner stops making payment on the mortages, then the banks will foreclose, saving you time & money.
Double check your R&R's, but chances are many privileges (such as pool, tennis courts, voting rights, parking) will be suspended until the fees are brought current.

[Ric232]

That's what I thought. Why would the lender foreclose? So if we foreclose, do we just end up owning the property subject to a $380,000 mortgage?

[LindaP777]

Originally Posted by Ric232

That's what I thought. Why would the lender foreclose? So if we foreclose, do we just end up owning the property subject to a $380,000 mortgage?

No, it doesn't work like that. The mortgage does not transfer to the new owners. You would have to foreclose (cost a lot of money and time), then go to the sheriff's sale and bid on the property yourself (representing the HOA). The first and second mortgage holders would be there bidding to protect their interests as well. In order for you to recover your $7000, the bidding would have to continue until the first and second mortgages are covered and then your lien. If you buy it back at the sheriff's sale, the HOA would have to come up with the money to buy the property. I doubt that they would want to own a condo or even pay more than it is worth. The only way for you to recover is if someone out bid you (above and beyond, first & second mortgages and your lien) and that ain't gonna happen if the property is worth less than the mortgages.

[Ric232]

Ok, now we're getting somewhere. We are not foreclosing in order to recover our $7,000. We are considering foreclosure in order to stop the $7,000 from growing. We are a very small association (only 30 condos) and the owner is still not paying their assessments so the amount is growing every month. We just want there to be another owner so that the future assessments will be paid (and no, we don't want to be the owner).

So, help me out a little more. I understand all the reasons why we may not want to go to foreclosure. But if we do proceed to foreclosure, the bank(s) will show up and bid something, correct? They will obviously not bid more than their loans. So the first mortgagee will end up owning the unit. Then what? They own it until they can sell it and we won't see any assessments until they sell it? We're just looking at this as a way to force the current owner out and get a new owner who will pay assessments. Otherwise, the current owner could continue to go indefinitely without paying current or future assessments, right? Am I missing something? Is there a better alternative?

[LindaP777]

Originally Posted by Ric232

But if we do proceed to foreclosure, the bank(s) will show up and bid something, correct?

Yes

Originally Posted by Ric232

They will obviously not bid more than their loans.

Correct

Originally Posted by Ric232

So the first mortgagee will end up owning the unit.

Or possibly the second mortgage holder.

Originally Posted by Ric232

Then what? They own it until they can sell it and we won't see any assessments until they sell it?

The new owner (bank) is responsible for the current (not past) fees.

Originally Posted by Ric232

We're just looking at this as a way to force the current owner out and get a new owner who will pay assessments.

Seems like a lengthy, expensive way to finally get a new owner who might be as bad or worse than the current owner.

Originally Posted by Ric232

Is there a better alternative?

Talk to a lawyer for a small fee. Your HOA might be able to take this home owner to small claims court. When you win, you might be able to garnish wages if your state allows it. (I'm not sure that's allowed in Florida.)

[Ric232]

Linda,

Thank you for such thorough replies. I'll look into all of this and speak to our attorney.