There are two ways to foreclose on a condominium unit in Virginia; each has its own advantages and disadvantages.
First, a condominium association can file a lien under Va. Code § 55-79.84 for unpaid assessments; at any point within 36 months of the filing of the lien, the association can proceed to foreclosure on that unit. The condominium lien would have priority over any other debts of the unit owner, save for first deeds of trust and real estate tax liens. When the unit is sold, the proceeds would be put towards paying the first deed of trust, any outstanding real estate taxes, then the condominium lien and the costs of foreclosure.
This lien, however, can only capture the last 90 days of unpaid assessments; anything that accrued earlier than that would not be part of the lien, and would not have the priority that the lien enjoys. As a practical matter, therefore, an association would have to be very pro-active in making sure that assessments liens were recorded; otherwise, any historic unpaid assessments would probably not be satisfied upon foreclosure. Note, as well, that while the costs of the foreclosure itself enjoy a certain priority after the sale of the unit, the Association’s costs of collection and attorneys’ fees unrelated to the foreclosure sale do not, and that money would not be recovered.
The alternative approach is judicial foreclosure. This can help an Association recover more of the unpaid assessments, but it is a more complex procedure. First, the association must bring a suit against the unit owner for the unpaid assessments; such suit could encompass years of unpaid assessments. In addition, depending upon the provisions in the association’s governing documents, a successful suit could also include an award of attorneys’ fees and costs, which would be rolled into the overall judgment against the unit owner. Once the judgment is entered by the court, the association would have all the methods prescribed by the Virginia Code for collection on the debt, including garnishing the unit owner’s wages and attaching his or her bank accounts. The limitation period for collecting on a judgment lien in Virginia is twenty years.
If those methods fail to satisfy the judgment, the association has the option of filing a circuit court action for a creditor’s bill in equity, essentially asking the Court to order the sale of the property in order to satisfy all existing judgment liens. As with the lien approach, any proceeds of the foreclosure sale would be used first to pay the costs of foreclosure, any outstanding real estate taxes, and any first deed of trust. Only after these claims are satisfied would any remaining assets be put towards satisfaction of the association’s judgment lien.
Under either of these approaches, a few points must be made. First, before any action is taken on foreclosure, the association must do a complete title search, to determine exactly what liens exist on a property and what the outstanding real estate taxes are. The results of that search may well determine whether foreclosure would result in any recovery by the association – obviously, the larger the amount of the first deed of trust and outstanding taxes, the less money would be available for unpaid condominium assessments. Candidly, given the current state of the market, it is unlikely that any foreclosure sale would generate sufficient income to satisfy both a first deed of trust and the unpaid assessments. For that reason, we recommend that foreclosure proceedings be undertaken only as a matter of last resort.
Finally, there are two other potential benefits of a threat of foreclosure that are not strictly monetary. First, the risk of losing one’s home may drive the unit owner to bring his account current, or at least make a substantial payment towards that end. Second, and to the extent that the unit owner was teetering on the brink of bankruptcy, a threat of foreclosure may drive him to file for bankruptcy; in such a circumstance, the plan of reorganization may include payment of all future assessments, at the least.