Foreclosure filings have fallen to their lowest level in almost 4 years. Lender Processing Services Inc., a real estate information company in Jacksonville, estimated that in June, delinquent borrowers in the U.S. averaged 587 days without making a mortgage payment, up from 251 days in January 2008. These numbers are no doubt driven up by Florida’s numbers, where the average delinquent borrower has not made a payment for 719 days, and where 14 percent of homes with a mortgage have a foreclosure notice.
These delays, certainly due in part to efforts by lenders and government agencies to keep delinquent borrowers in their homes, can negatively impact homeowner groups, which rely on homeowner dues to operate. Where the delinquent homeowner lives in a residence with a condo or homeowner association, a delay in foreclosure allows the homeowner to stay in his home or condo for a sometimes lengthy period of time, frequently without paying his monthly dues.
Facing insolvency, homeowner groups are taking banks to court to try to speed up the process. They pressure the lender to accelerate home seizures and take over payment of the monthly fees. Complaints filed against banks allege that the banks abandoned their interest and either need to accept responsibility for the title or walk away. Commonly, the bank defendant is a trustee for the loan that was sold into a mortgage-backed security, and as a result the party responsible for the mortgage is often unclear. Some of these banks choose to not challenge lawsuits filed against them by homeowner groups because they are not the servicers of the delinquent loans. In one such case, a bank forfeited its right to a unit in Florida with a $149,300 mortgage.
Homeowner associations’ rights vary by state. In Nevada, for example, they can collect up to nine months of back dues plus costs when a residence sells, even after a foreclosure. In Florida, homeowner groups are limited to collecting 12 months of back dues or 1 percent of the outstanding mortgage, whichever is less, but the cap is often found to not apply to banks. As a result, in one case involving a Miami Beach condo, the plaintiff (LM Funding, a Florida company that advances cash to condo associations in exchange for the lien rights on past-due accounts) collected $52,000 – including late fees, 18 percent interest, and collection costs – as opposed to the $3,000 the bank would have paid had the state limit applied.
There are extreme cases where the lender is forced to give up its rights to the property altogether. For example, members of a condo association in Miami Beach sued a lender in February in an attempt to take over the property. In June, the court found that the lender had lost its claim to the mortgage, and the association hopes to avoid insolvency with the proceeds from the sale and monthly dues from a new owner.