Mortgage company public trustee foreclosure filings have generally been increasing over the last few years. Many of these homes are located in community associations. While the homeowner’s mortgage is an agreement between the homeowner and the mortgage company, there are impacts to the association when the first mortgage forecloses.
Superlien: When a foreclosure is initiated, the superlien comes into existence. The value of the superlien is equal to any assessments that came due in the six months prior to the start of the foreclosure. For example, if a foreclosure action is filed on June 2, 2026; the superlien amount is equal to any assessments that came due December 2, 2025 through June 1, 2026. This superlien survives the mortgage company’s foreclosure and remains as a lien against the property even after the foreclosure sale. If the superlien is not paid during, or shortly after, the foreclosure sale, it can be collected at closing when the post-foreclosure owner sells the property to a new homeowner.
Association’s Lien: Other than the superlien amount, the rest of the association’s lien value is extinguished once the foreclosure sale is complete. This means that if the post-foreclosure owner sells the property to a new owner in the future, the pre-foreclosure owner’s balance will not be collectable at closing.
Homeowner’s Personal Liability: The mortgage company foreclosing on the property has no direct impact on the homeowner’s personal responsibility for the balance that came due while he/she was the owner of the property. The association is free to proceed with personal collections through payment plans, lawsuits, and garnishments. Practically speaking, the foreclosure may indicate that the homeowner is in a difficult financial position so finding funds to collect from them may be difficult.
Redemption:
At the foreclosure auction, whoever is the highest bidder will take ownership of the property unless one of the lienholders exercises their right to redeem the property. As a lienholder, the association has the right to redeem the property, which allows the association to take ownership of the property instead of the highest bidder. In order to redeem the property, the association would need to repay the highest bidder whatever was bid at the auction. This amount is required to be available quickly and provided to the public trustee in certified funds.
If a board is interested in redeeming, legal counsel needs to know right away, as the deadline to file the paperwork with the public trustee is eight business days after the foreclosure sale occurs. Most boards have no interest in redeeming because they don’t have the funds to do so and/or they don’t want to own the property. However, this is an option that is legally available to associations.
Overbids:
If multiple bidders are interested in a particular property at the foreclosure auction and the winning price is higher than the balance that is due to the mortgage company, this is called an overbid. Those extra funds are available to junior lienholders (including the association) if paperwork is filed quickly after the sale. The association’s attorney should be authorized to monitor any pending foreclosures, so they are able to obtain any overbid funds to apply toward the balance due from the homeowner, if any.
When a homeowner’s mortgage company forecloses against the property, the association can be impacted in several different ways. It is important to contact the association’s collection attorney with any questions or concerns about any particular foreclosure in order to put the association in the best possible position to be able to collect any balance due from the homeowner and/or make the association whole through the foreclosure.
Feel free to contact an Altitude attorney at 303-432-9999 or [email protected] for additional information or guidance concerning public trustee foreclosures.