Foreclosure of an Association’s assessment lien is an important tool in the collections arsenal. Of course, not every property in every association may be an ideal candidate for this collection tool. Below are the top cues that may help you determine whether a particular delinquent account or property would benefit from the use of foreclosure as a collection tool:

  1. Property is Bank Owned – There is no reason why banks that own properties should be treated differently than any other owners. Once an association has exhausted its normal collection procedures against a bank-owned property, it should strongly consider instituting a foreclosure action. Foreclosures on bank-owned properties almost always result in the association receiving payment in full (including all attorney fees) within a few months of beginning the action.
  2. Property is Entity Owned – Typically a judgment obtained through a collection action against a single-asset entity in County Court is almost worthless, because the entity was likely created specifically to defeat such liability. A foreclosure targets the entity’s only asset, so it’s more likely to be successful then a collection action.
  3. Owner has Equity – If an owner refuses to pay assessments on a property they have equity in, there is no reason not to initiate a foreclosure. The owner may need to consider further encumbering their property to pay off the association to avoid foreclosure.
  4. Property has Junior Liens – Junior liens include consensual liens like second mortgages. All liens after the first deed of trust are junior to the association’s lien. Therefore, these junior lienholders stand to lose their interest in the property if the association forecloses. This means they often pay off associations if foreclosure is initiated.
  5. Recent Foreclosure on Property Cured or Withdrawn – In this case, it means the owner found a way to stop a bank’s foreclosure (usually by paying a pretty large default). Often the owner in this situation is more likely to find a way to pay the association.
  6. Investment Property/Second Home – Owners of investment properties or second homes (i.e. mountain condominiums) often have more liquid cash and will not want to risk the bad credit associated with a foreclosure action.
  7. Association Has No Other Choice – The association should consider foreclosure when all other collection options have failed. For example, the association obtained a collection judgment but the owner has not paid in years, cannot be garnished, but still lives in the property. At some point the association should cut its losses and file a foreclosure action, even where the owner has no equity. In these cases, the Association can make the best of a bad situation by foreclosing on the non-paying owner and getting a paying owner in the unit, even if this means spending attorney fees in the short term.


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