When a Board becomes aware of a Public Trustee foreclosure proceeding, their first question is usually “What does this mean for us?” If the homeowner is delinquent in their assessments, then the Association has a lien against the property. Assuming it is the first mortgage foreclosing against that homeowner (as opposed to a second mortgage), once the foreclosure sale is completed, the Association’s lien will be extinguished with the exception of the superlien.

In practical terms, this means the Association will get paid 6 months’ worth of assessments for the superlien and the remaining balance due on the lien is extinguished and is no longer an encumbrance against the property. The Association does still have the option to pursue the homeowner personally for the remaining balance due. In addition, the Association has the right to redeem. But what does that mean?

Redemption provides another option to the Association, as a lienholder, at the end of the Public Trustee foreclosure sale. At the foreclosure sale, ownership of the property will either go to the mortgage company or to someone that bids on the property at the foreclosure sale. The Public Trustee posts who was the high bidder at the foreclosure sale and how much that high bid was. In a bad economy, the mortgage company ends up owning many properties after the foreclosure sale. In a good economy, there are frequently investors that come to the foreclosure sale and it is more common for an individual or business to be the high bidder. Regardless, the foreclosure sale price will usually be a substantial amount of money. The mortgage company’s initial bid will be whatever the homeowner is past due on their mortgage payments, plus interest, late fees, attorney fees and other costs of the foreclosure process. Because of this, it is not unusual for the mortgage company’s initial bid to be $100,000 or more and subsequent bids will raise the winning bid to a much higher amount.

Within 8 business days of the Public Trustee sale date, any lienholder who wishes to redeem its interest in the property must file its Notice of Intent to Redeem. So, in order for the Association to redeem, the Association must file a Notice of Intent to Redeem very quickly after the foreclosure sale. The Public Trustee will then provide the Association with the amount that must be paid to redeem the property. This amount is equal to the high bid at the foreclosure sale, plus interest, costs and expenses actually incurred by the high bidder.

The Public Trustee provides the deadline for the Association to pay the redemption amount, but it is generally the 19th business day after the foreclosure sale. The redemption amount must be paid in cash or certified funds, so the Association has to have access to a large amount of money quickly after the foreclosure sale is completed in order to redeem.

If the Association redeems, the Association would then receive title to the unit unless a junior lienholder were to file a Notice of Intent to Redeem and pay the full amount owed to the Association. If the Association obtains title to the property, it could then either rent or sell the property. If the Association were to sell the property, it can retain all of the proceeds.  (For example, if the Association sold the property for $200,000 and it had paid $100,000 to redeem, the Association would be entitled to keep the remaining $100,000).

In some instances where there is significant equity in the property, it may be advisable for the Association to consider the redemption of its lien, assuming, of course, the Association has the financial means to do so.

If you are interested in discussing redemption rights in general, or regarding a particular property, please contact one of our attorneys at 303-432-9999 for additional information.