Q: I am three months behind on my condominium association payments. Can the association foreclose on my unit? My mortgage payments are up to date. I called my mortgage company, which told me the association could not foreclose. Last month, I wrote a letter to the board of the association asking for a payment plan, but have not yet received a response. I know I owe the money, but I was sick for a time. I plan to pay the back fees with my tax refund.
A: Your mortgage company was wrong. Most condominium documents -- and laws -- permit the board of directors to institute foreclosure proceedings if you are delinquent on your condo fees.
You should read your condo documents carefully. There is a section in the bylaws, usually called "Compliance and Default," that spells out all the remedies that a condominium association can take when a unit owner violates the terms and conditions of the legal documents.
The language typically reads like this: "Failure to comply with any of the terms of the Act, the Condominium Instruments or the Rules and Regulations shall be grounds for relief which may include, without limiting the same, an action to recover any sums due for money damages, injunctive relief, fines, sanctions, foreclosure or power of sale of the lien for payment of all assessments, any other relief provided for in these Bylaws, the Act, the Rules or any combination thereof, and any other relief afforded by a court of competent jurisdiction, all of which relief may be sought by the Association, the Board of Directors, the Managing Agent, or, if appropriate, by an aggrieved Unit Owner and shall not constitute an election of remedies."
Simply stated, this means that if a unit owner has not paid his or her condominium fees, the board of directors of the association can sue for damages, file a lien on your unit or foreclose.
In practical terms, foreclosure is not always the best remedy -- and it might not even recoup the money for the association.
Even before the association begins the process, the delinquent unit owner's lender must be given written notice of the intent to foreclose. The lender -- in its sole discretion -- may pay the condo delinquency and add this amount to the outstanding balance on the mortgage.
Should your lender opt not to make these payments, the association has to decide whether it really makes sense to move ahead. There are upfront costs for a foreclosure, such as advertising, auction and legal fees. These usually add up to several thousand dollars, even before the foreclosure sale.
And the sale itself might not be easy. There is an outstanding mortgage that would have to be paid off -- or at least addressed -- by the successful bidder. If there is little or no equity in the property, which is often the case these days, this means there are likely to be few if any bidders. A home with a mortgage that exceeds the market value is no bargain, and foreclosure bidders are seeking bargains.
So what if there are no bidders? In that case, the association has two options: It can buy the unit at the foreclosure sale, or it can cancel the sale and absorb all the costs. If it buys the unit, it becomes the property owner, and will be burdened with expenses.
First, the mortgage will have to be paid off. Then, the association will have to deal with the current owners of the unit, and either evict them or arrange a temporary lease.
Next, now that the association owns the unit, it will have to pay the real estate tax. Additionally, it has to pay the monthly assessment just like any other unit owner, which could mean that everyone's assessment may have to be increased.
And the association has to keep in mind that under these circumstances, it still will not have collected the delinquent assessments, nor will future condominium fees be coming in for the unit.
In the ideal world, the association could sell the unit and the new owner would start paying the fees. The hemorrhaging would stop.
But as President Obama said earlier this week, "this is not your ordinary, run-of-the mill recession." There is no guarantee that the association would be able to sell the unit quickly in today's market.
Additionally, should the unit be placed on the market for sale, this would compete with -- and alienate -- other owners who are trying to sell their units.
For all these reasons, associations should consider foreclosure only as a last resort.
I am surprised that your board has not responded to your request for a payment plan. A typical plan works like this: You agree that by a certain date, you will resume your monthly payments. You will also add a percentage of your outstanding balance in an amount agreed to by the board. If you honor the agreement, you will eventually catch up. However, if you default on the agreement, then the board can pursue you in court or institute foreclosure proceedings.
I suggest that you talk to the board president and make sure that the board understands that such a plan could be a win-win. The longer they wait, the harder it will be for everyone.
The laws in different parts of the region vary, so you should consult your own lawyer for specific advice.
One other suggestion. Talk with the accounting department at your workplace. You might want to increase your deductions so that you get more take-home pay, instead of waiting for that tax refund each year.
Benny L. Kass is a Washington lawyer. For a free copy of the booklet "A Guide to Settlement on Your New Home," send a self-addressed, stamped envelope to Benny L. Kass, Suite 1100, 1050 17th St. NW, Washington, D.C. 20036. Readers may also send questions to him at that address or contact him through his Web site, http://www.kmklawyers.com/
