First mortgage holders continue to be the largest impediment to Association collections, once unit owners fail to pay. This arises because the bank’s lien is superior to the association’s and therefore most associations decide not to proceed with a foreclosure if the bank has begun its foreclosure. This is true even though banks frequently file foreclosures and then don’t proceed to the sheriff sale, adjourn the case indefinitely or very SLOWLY, or never seek to confirm the sale. Accordingly, Associations must have a strategy to combat these issues. Here are the options:
- Proceed with your collection, regardless of what the bank is doing, at least to the point of obtaining a judgment, so that if the bank decides to delay things the Association can sell the property and proceed to collect regardless of the bank’s actions; or
- Monitor the bank’s stalled foreclosure, which tends to be for at least six months and therefore costs the association more than $1,000 in what becomes uncollectable assessments; or
- Do nothing which means not collecting the assessments from the unit owner who is refusing to pay HOPING that the bank actually completes its foreclosure and confirms the sale.
Assuming the Association decides to be proactive and proceed with Step 1 above (until the bank actually confirms the sale), it will likely obtain title to the unit, subject to the first mortgage. The association then can proceed in one of a number of ways to recover the funds it has spent or not collected:
- Rent out the unit;
- If the association can’t rent the unit because the cost to put it into a rentable condition exceeds the potential recovery, then proceed with a quiet title action to force the bank to make a decision whether it wants the unit or to release its first mortgage; or
- If there is equity in the unit, have the association sell it.
In addition to these options, the Association can consider some other collection options:
- Immediately after obtaining the foreclosure judgment, but long before the sheriff’s sale is allowed, seek to garnish the unit owner’s employer, bank or any other third party that holds assets of the unit owner; or
- Seek the appointment of a receiver (this has not been attempted in Wisconsin to our knowledge, but it is being more frequently used in New York under similar circumstances) to collect rent from either the delinquent unit owners, or from the delinquent unit owner’s tenants. If the unit is vacant, the receiver would normally have the power to rent it out. The association that ultimately determines it wants to give this remedy a shot in Wisconsin will need to be prepared to potentially lose.