The Denver Post recently reported that Colorado has the dubious honor of leading the country in the number of foreclosures. This unfortunate distinction is particularly unwelcome news for Colorado’s community associations.
If an association declines to exercise its redemption rights when a first mortgage holder forecloses, the association is limited to recovering just 6 months worth of assessments, known as the “superlien”. In addition, the association’s lien against the property for any remaining delinquency is extinguished. Since foreclosure generally indicates serious financial problems, associations often find it impossible to recover any money from an owner after the foreclosure takes place.
While lender foreclosures go through the public trustee, associations judicially foreclose on its liens. With public trustee foreclosures on the rise, should associations still consider judicial foreclosure as a tool to collect unpaid dues? Yes – utilizing judicial foreclosures can be particularly effective when confronted with a chronically delinquent owner. Numerous associations consistently find themselves struggling with owners who simply do not take their obligation to pay assessments seriously. Initiating foreclosure against such owners, even prior to the filing of a collection lawsuit, sends a strong message to such owners as well as the general community that the association is serious about collecting assessments.
An association should also consider foreclosure on all severely delinquent accounts. When the debt owed to the association exceeds what the owner likely has in a bank account, collection efforts such as garnishment may be futile. Often, however, there is ample equity in the property to warrant foreclosing. In the majority of foreclosures filed by our association clients, the association is paid in full at some point during the process by either the owner or a junior lien holder. Most owners choose to pay the association in full rather than risk losing their home for relatively small amounts. Similarly, parties who hold junior liens against the property often pay the association in full to preserve the validity and priority of their interests.
We have found that associations are generally most successful in collecting assessments when they are aggressive in the early stages of delinquency. The earlier the account is referred to our office, the earlier we can obtain and analyze title reports to determine if foreclosure is advisable… and the sooner we can begin to collect.