If you have ever been faced with the decision on whether or not to foreclose on a home or unit based on the home or unit owner’s default on making payments to the association as required by the association’s governance document, you know it can be challenging to say the least. Using your “gut feel” to determine the likelihood of the association recovering its money is no better than consulting a psychic or using a crystal ball. There just isn’t any simple way to know if it is worth risking additional association funds to pay for the attorney and associated legal costs of foreclosure. Until now!
Introducing Community Financials’ Pre-Foreclosure Analysis Tool. Foreclosure is an expensive and potentially risky solution that traditionally costs the association lots of money in both lost revenue and legal fees to pursue a remedy against the delinquent home or unit owner. Community Financial limits that risk by providing clients with a detailed foreclosure analysis before the Board has to make a risky decision.
For HOAs, condominium associations, cooperatives and other common interest communities, community associations, the first priority for dealing with delinquencies should be to recover the money the association is owed. Failing a successful collection attempt, the Board is tasked with making the momentous decision to foreclose or not to foreclose. Before the decision to engage an attorney at the expense of the association is made, the board of directors needs to analyze the cost benefits in order to make an informed decision. Blindly sending a unit into foreclosure can cost the association more money than what is owed. Only a detailed financial review can prudently answer the question: “If we foreclose, will we recover the money that’s owed to our association?”
This is why Community Financials offers the Pre-Foreclosure Analysis, a new report that provides an intelligent way to make sure the board is making a prudent decision that is in the association’s best interest before it decides to spend more money on the legal proceedings of a foreclosure.
Community Financials’ Pre-Foreclosure Analysis helps board members and managers make an informed decision. With this report the board can know in what position the property is in from a financial perspective. It is not always in the association’s best interest to foreclose on a specific property. This analysis allows the Board to see the benefits or the disadvantages of an association foreclosure.
Here are some of the highlights of the kinds of answers the report provides and what actions the association should consider:
Foreclosure is NOT in the Association’s Best Interest When:
The senior lender is actively engaged in a foreclosure action on the property and, upon obtaining a judgment, will extinguish all subordinate liens, rendering the association’s foreclosure action moot. If you engage an attorney, they will want to be paid for all actions taken. Money lost.
If the unit is without equity rendering the intervening title not marketable, and the only way to monetize the property would be to rent it. However, what you may not know is the physical condition of the unit. Rehabilitating the unit may be a large expense that can be wiped out by a bank foreclosure not too far in the future. This will result in the association not having the opportunity to recover past due fees, attorney costs, and rehabilitation costs. Money lost.
Other liens that will not be extinguished by the association’s foreclosure such as IRS liens, tax liens, that will remain and encumber the unit and endanger the association’s ownership position. Having to deal with tax authorities in matters such as this can put the association in a bad and perhaps expensive position. Money lost.
The owner of the property may be in bankruptcy which would preclude all legal and collection actions contemplated. Now, if you gave this to an attorney it would become apparent that the owner is in bankruptcy and all legal actions might cease but guaranteed your attorney will bill you for the time, they took to find this out. Knowing this information before you engage an attorney will save the association hundreds, if not thousands, of dollars. Money lost.
The owner may have passed, and the property is in probate court which takes time and expense and usually an unknown outcome. Money lost.
Foreclosure IS in the Association’s Best Interest When:
There is no mortgage or other encumbrances on the property and a foreclosure would give total ownership to the association. This is a good position to be in as the association could sell the unit and recover past due fees, attorney costs, collection costs, taxes, and any other debts owed by the previous owner to the association. This is a critical thing to know. Money likely recovered.
The property does have equity opening the possibility of a third party purchasing the intervening deed (still encumbered by a first mortgage) for what is owed at foreclosure sale and having a good paying owner take over the property. Additionally, if the property has no mortgage, or has equity, and the association ultimately takes title to the property via their own foreclosure sale, the association would be able to sell the property and experience gains that may exceed the amount owed of the delinquent unit ledger, after the payment of superior liens. Money likely recovered.
If the bank is not actively pursuing a foreclosure the association may have up to 3-5 years to monetize the unit by renting it out and that would pay for all the money owed and pay down the ledger. Knowing where the bank is regarding a foreclosure is of paramount importance. Money likely recovered.
The association should always put itself in the best position to collect money owed to the association. That requires an understanding of the economic positioning of the unit and many other external factors to make an informed business decision. Understanding the economic positioning of the unit will help the association forecast the possible outcomes.
Community Financials’ Pre-Foreclosure Analysis provides the association with all the pertinent information so that the best and most informed decision is made without simply guessing. Before you send a property to your attorney to foreclose, be armed with the facts in order to make a good business decision. If your association is facing the possibility of foreclosing on a home or unit, get in touch with Community Financials today and ask about this incredibly useful tool BEFORE the decision is made to foreclose.