It happens all the time—an association gets served with a lender foreclosure action and the papers get set aside, never given a second thought. It is hard to fathom a more costly approach to association management that, in the long run, produces a greater negative impact to the association’s budget. Let’s take a second to consider why it is that community associations are named defendants in a property owner’s foreclosure action and get served with the lawsuit in the first place. The reason is because associations have a financial interest and lien rights in the underlying property for the required assessments pursuant to their declarations and the Florida Statutes. By ignoring lender foreclosure actions an association is ignoring its own financial interest and main source of revenue. This blog post is the first in a series of posts discussing the top reasons why community associations must not ignore lender foreclosure actions.
Perhaps the greatest reason to not ignore lender foreclosure actions is because, under Florida law, associations can expedite the foreclosure process when lenders are delaying. It is estimated that Florida’s foreclosure process is more than three times the national average. In fact, the average time a property is tied up in the foreclosure process is nearly 900 days, or two and a half years. This is for a couple of reasons. First, lenders have too many foreclosure actions and not enough resources to push them through efficiently. Second, banks really don’t want to be in the property management business anyway, so even if they had the resources they are not motivated to move speedily just to own an abandoned property that it must then maintain. The end result is a large number of properties sitting idle for years, hung up in the foreclosure process and with no assessment revenue from those properties coming into the association during that time.
The typical association must deal with multiple properties in foreclosure concurrently, which multiplies to significant missed revenue. For example, if an association has 4 properties in foreclosure and the monthly assessments are $150, that equals $600 in missed revenue a month or $7,200 for the entire year. Now extend this for the life of the average lender foreclosure action and that association is missing at least $18,000 total. Most associations experience new foreclosure actions every year, which only adds to this deficit. It is hard for any association to meet its budget with these types of headwinds, and the financial burden of this reality falls onto the shoulders of all other association members.
Yet, it doesn’t have to be this way. In 2013, the Florida Statutes were amended to allow “lienholders” and, specifically, condo associations and HOAs to file what is called an “order to show cause” for the entry of a final judgment of foreclosure in favor of the lender. Upon filing this motion, a hearing is set for all parties to come before the court to show why a foreclosure judgment and sale should not be entered. If no valid legal justification is shown to prolong the foreclosure action then a judgment will be entered and a sale set to occur usually within 60 days or less.
By consistently utilizing this approach, lender foreclosure actions can oftentimes be completed within a year and sometimes within approximately six months, which reduces the average foreclosure process by at least 1.5 years. At the foreclosure sale the bank will typically gain title to the property, putting the bank on the hook for all future assessment payments. This results in the property generating assessment revenue anywhere from one to two years sooner than if the association just ignored the lender action. Using the example mentioned above, this could be a net difference of over $21,000 to the association’s budget when considering the combined benefits of stopping the assessment losses while also generating assessment revenue from those 4 properties. This makes it well worth the effort for associations to implement a general policy of always appearing in lender foreclosure actions and taking steps to expedite the process. Stay tuned for Part II in this series, which will discuss additional reasons why community associations must not ignore lender foreclosure actions.