Unfortunately, sometimes homeowners pass away. When that happens and the homeowner owes a balance to the association, boards often have many questions about what that means and what they should be doing. First and foremost, remember that the heirs are grieving their loved one. Board members are often torn between wanting to be respectful of the situation, but also carry out their fiduciary duty as a board member. Here are five questions to consider when a deceased homeowner has a balance due to the association:
- Are there other owners? Check the assessor’s records in the county where the property is located. If there are any other owners of the property, it is less likely that a balance will start (or continue) to accrue. Often, the other owners of the property are aware of the association and continue to pay assessments. If they don’t, the board should follow the association’s collection policy as to the other owners and begin sending them delinquency notices.
- Has an estate been opened? The association or management company will sometimes receive notice that a probate matter has been opened with the courts. Even if no such notice has been received, the association’s attorney should be able to locate a probate matter if one has been filed. If a probate case has been started with the courts, the association (via their attorney) should file a claim with the estate in order to be paid with any funds available through probate proceedings. Additionally, if there is an attorney handling the estate, they may be able to provide additional information about what the heirs plan to do with the property such as sell it, rent it, live in it, etc. Depending on what the heirs plan to do, the board and the association’s attorney can get a better idea of what to expect and the best next steps. For example, if a property is going to be put on the market for sale shortly, it would usually not make sense to initiate a foreclosure on the property. Speaking with the association’s attorney can give the board a roadmap for how best to proceed, given the specific circumstances and information provided by the estate attorney.
- Will the mortgage company foreclose? In true lawyer form, the answer to this question is “it depends.” As with any homeowner, whether or not a mortgage company forecloses depends on if the mortgage payments are being paid. If the property was owned free and clear of any mortgage, then there is no mortgage company to foreclose and the heirs will need to decide what they do with the property. If there is a mortgage, then the heirs or the deceased homeowner’s estate will need to pay the mortgage to avoid the possibility of the mortgage company foreclosing. In the case of elderly owners, there may be a reverse mortgage on the property. A reverse mortgage can add an extra layer of complication to the situation as the death of the homeowner may start deadlines by which the heirs have to take action regarding the reverse mortgage to avoid foreclosure. As in question 2 above, the estate attorney (if any) may be able to provide valuable information to the board or the association’s attorney about the status of the property and if a foreclosure may be imminent. Additionally, the association’s attorney can pull title records on the property to determine what, if any, mortgages may be against the property to recommend the next best steps, given the particular circumstances.
- What about a foreclosure? Foreclosure is generally not needed to collect when a homeowner is deceased. Generally, foreclosure is not recommended because of some combination of the following: An estate has been opened and payment will be made through the estate’s funds, the heirs plan to take ownership and pay the assessments, the heirs plan to sell the property and the balance will be paid at sale, and/or the mortgage company has already started a foreclosure in which case it is often not recommended that the association initiate their own. However, in some circumstances, the association’s attorney may recommend the association initiate a foreclosure against the property. This generally occurs when there is no mortgage against the property, no estate has been opened, and/or no heirs have been identified or come forward to claim the property. In these cases, if a property is sitting vacant for an extended period, the board may discuss the pros and cons of a foreclosure with the association’s attorney.
- What about a receivership? A receivership is a court-ordered third party that acts as landlord on a property. Receiverships are only available if a property is either vacant or tenant-occupied. Family members living in a property can make a receivership more difficult, but still possible in many cases. As with question 4 above, the specific circumstances should be discussed with the association’s attorney regarding the likelihood of being paid without the need to request a receivership from the court. Like with a foreclosure, whether or not a receivership is recommended will likely depend on if there is an estate opened, what the heirs intend to do with the property, and/or if heirs have taken responsibility for the property. Any boards that may be interested in a receivership should discuss this option with the association’s attorney.
If an owner has passed, it is important to be respectful of the situation and remember that the heirs are grieving their loved one. This situation often requires a balance of patience and understanding with the board’s fiduciary duty to collect unpaid assessments. If you have questions about collections in this unfortunate situation, it is best to contact the association’s attorney for direction given the specific circumstance.
If you have any questions or concerns about collections options, please feel free to contact any of our Altitude attorneys at 303-432-9999 or [email protected]