News on Reverse Foreclosures

My Twitterpal Melissa Garcia, (@ColoradoHOAGal) pointed me to this article in the Miami Herald, which  explains the mechanics of a typical reverse foreclosure.  Reverse foreclosures are being pursued by community associations throughout the country, as associations find themselves stuck with units on which the owners will not pay and on which the lenders will not foreclose.  The problem arises everywhere, but particularly in those states with higher foreclosure rates.

A condominium or homeowners association (HOA) that forecloses a unit upon which there is a senior lien will not be able to take title, but will be able to get access to the unit, and presumably put some pressure on the lender to step up to its obligations.  The law is still developing in this area, so watch for new developments as some cases are decided.

The article also quotes another frequent blogger and twitterer, Donna Berger, (@CondoandHOALaw); Donna wisely recommends that associations rent the units after taking them from the banks.

Abandoned...

Monday's New York Times had an article on the continued (and apparently increasing) tendency of lenders to walk from properties, rather than foreclose on them.

This article, however, reveals a new twist to the problem: the owners, who think their homes have been foreclosed, are being charged by municipalities for the clean up, and sometimes the demolition of, these residences. So it's not just community associations that are facing non-responsive lenders, but also the owners of those units. Previous posts on this blog have advocated vigilance in the monitoring of units in this day and age; this gives another reason. And just because a lender threatens foreclosure, don't assume it will be completed.

Mortgage Cram-Down Update

Last night, the U.S. House of Representatives passed H.R. 1106, allowing for bankruptcy court intervention in renegotiating the terms of certain mortgages. The bill does not directly refer to association's, but CAI's Public Affairs team was (and is) encouraging community association leaders to follow the legislation, and share your concerns about the potential of interference with community association assessments. Here's a snippet of the info sent from CAI this morning:

On Thursday, March 5, the House of Representatives passed HR 1106 with some technical amendments by a vote of 234 to 191. Although the concerns raised by CAI and others have not yet been fully resolved, your efforts in expressing concern have helped us get Congress’s attention, and members of the Judiciary Committee have committed to work with us to clarify and address these issues.

CAI continues to have concerns that the legislation will have a negative impact on associations in states with priority assessment liens, and that the grant of authority to bankruptcy courts, absent clearer direction and limitations, may be used to modify a homeowner’s assessment obligations to his/her community association. Again, thanks to your efforts, Congress is now aware of these issues and we will continue to work with legislators as the bill moves into the Senate.

Your efforts will help us ensure that this legislation will not have negative unintended consequences for common interest communities across the country and the residents who are current in their assessments. A well-crafted plan, that helps those in distress while protecting those who are current, will benefit us all.

I'll post updates here on this blog, and on the www.utahcondolaw.com parent page, and on our new collection site, www.caalrs.com

You Think Your Association Has Problem Owners?

A New York cooperative isn't unique among community associations in having to pursue collection against one of its tenants, Courtney Love, but the amount being pursued is a bit higher than I'm used to. Her $18,000 lien wasn't paid, so attorneys decided to pursue another $5,611.10.

Because she still didn't pay, the association, as of the last reporting, had filed a lien for $122,594.35.

Oh yeah, and then there are those other issues, also published by the Smoking Gun, which resulted in a threatened lawsuit.

Johannessen v. Canyon Road Towers Assoc.

57 P.3d 1119 (Utah 2002)

In the Johannessen case, the Utah Court of Appeals set aside an agreement, made by an association's board, to reduce the assessments on one unit below the amount as required by the association's declaration. In setting aside the agreement, the Court affirmed what appears in this author's mind to be obvious -- that any change of that magnitude requires a vote of a supermajority of the association's members.

In Johannessen, the sellers of a penthouse condominium somehow managed to convince their sellers and the association's board to reduce the assessments due from the unit, but the declaration was never amended. Several years later, the board realized they had exceeded their authority, and sought to assess the proper amount.

The Johannessens sued. The court of appeals held against the Johannessens on several basis; most principally the fact that they had knowingly purchased into a condominium association, and thus had constructive notice of the condominium act and the condominium declaration. Therefore, they could not reasonably have relied upon the board's improper reduction of the assessments without a vote of the membership.