Condo board foreclosure

On Dec 4, 7:42 am, TC <golemdan...@yahoo.com> wrote:
> I am on the board of a homeowner's association for a condominium
> complex in California. We have been fortunate, and have not had many
> delinquencies in the past. As a result, none of the current board
> members has any experience with foreclosure.

Then for Pete's sake, why don't you have the Board's lawyer-on-retainer handle this for you?   If you don't have one, get one.   Yesterday if not sooner.

> However, we now have one unit which is forcing us to consider
> foreclosure.

Wrong.   The debtor doesn't force YOU into foreclosure.   Rather, your board, as the creditor, CAN if you choose, force the debtor into foreclosure.   But you should do so only if that option is better for the board's interests than any of the other available options, and typically as a last resort.

First of all, if your condo bylaws are structured like most, you're not going to be able to "foreclose" without a lot of other legal stuff happening first.  You have to get a lien recorded in the land records of your county before you can legally foreclose on that lien, and to get that, you either need to have a contract with the unit owner that says you get an automatic lien, OR you have to sue the guy, win, and record your judgment as a lien in the land records.   All of that takes time, and money.   Meanwhile, if you do get a judgment you can also pursue other means of collection, including asking the court to seize and sell any other assets the debtor owns, if any, above the amount the law allows him to exempt from seizure as his "homestead exemption."   You will need a lawyer to explain all the ins and outs of your locality's law to the board to make that decision about which avenue is best for you. 

Even if you do already have a duly recorded lien, what's wrong with simply sitting back and waiting until the unit owner sells, then recovering the amount of the lien, plus interest, from the proceeds, as he must do in order to sell?

> At our last board meeting, we discussed the option and we
> discovered that none of us knew the answer to a fundamental question
> about foreclosure:

Then you need to get yourselves a real live local lawyer, show him all the relevant documents, and bring him to the next meeting to advise your board.    You would be foolish to rely on free advice from unknown keyboarders on the Internet who, for all you know and all they represent themselves to be, may just be a bunch of monkeys trying to rewrite Shakespeare.   Myself included.

> If we foreclose on a property, will we assume the
> mortgage debt? And, if the property is worth less than the loan
> balance, will we just be accepting a financial liability by
> foreclosing?

Typically, anyone holding a recorded lien can foreclose, no matter how small or recent their interest in the property may be.  But if they do, _all_ of the lienholders get paid off from the proceeds, in order of seniority, including the bank holding the first mortgage for the unit owner. any second mortgage or home equity line of credit he has, any property taxes he owes, and so on.

You seem to erroneously assume that "foreclosure" by a condo board will mean that you, the condo board, will wind up owning the property.   No.   All it means is that you have the right, if you choose, to force the owner to sell, and to pay off your debt from the proceeds.   The ultimate buyer at that sale on the courthouse steps, conducted by the sheriff or by an auctioneer hired by the court, is who will wind up owning the property; your board is not in the chain of title.   Generally, the buyer at foreclosure will wind up owning it free and clear of any prior liens.   That does not necessarily free the prior unit owner from his DEBT; if the proceeds from sale of the collateral are not enough to pay off all his debts, the creditors can still continue to come after him to make up the deficiency.

If the property is worth less than the loan debt, chances are you would be stupid to foreclose, since the senior lien (the one oldest in time, and usually largest in amount) gets paid off first, and junior lienholders such as recent judgment creditors get paid only if there is anything left over, after the senior liens and the cost of sale are taken into account.   You would wind up getting nothing for all your effort.

> I believe the answer is no -- If we foreclose, we do not assume the
> mortgage debt. Am I right about that?

In general, I think so too, but don't listen to me for sound advice on that point; you don't even say where you are, and local law plus the actual terms of the various documents involved may lead to a different result.  Your board needs to get a lawyer, before you take any other action on this issue.   Good luck,
--
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Mike Jacobs
LAW OFFICE OF W. MICHAEL JACOBS
10440 Little Patuxent Pkwy #300
Columbia, MD 21044
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