Most community associations can enforce their right to collect assessments by recording a lien against a property. If necessary, most associations can even foreclose and sell the property at a public auction to collect what’s owed. Unfortunately, HOA and condominium liens take a back seat to tax liens and first mortgages. What’s a first mortgage and how can it affect your association? The following are some frequently asked questions and answers to these important questions:
What’s a mortgage?
A mortgage is an agreement by a bank to lend money in exchange for a security interest in the borrower’s (homeowner’s) property. If the homeowner doesn’t pay the bank, the bank can foreclosure and auction off or take title to the homeowner’s property.
What’s a first mortgage?
A first mortgage is the primary or first priority loan on a property. A bank with a first mortgage can foreclose and auction off or take title to a home. All lesser claims against the property, including a second mortgage and an association’s assessment lien, are foreclosed / wiped out if a bank forecloses on its first mortgage. The only thing that is not affected by a first mortgage foreclosure is property taxes. Property taxes are superior to first mortgages and all other liens.
Can my association collect assessments if there is a first mortgage?
Absolutely. Most homeowner’s have first mortgages. This fact doesn’t mean they won’t pay their assessments. It also doesn’t mean your association cannot place a lien on a delinquent property or even foreclose on the lien and sell the property at judicial auction. It just means your association needs to be aware of any first mortgage foreclosure lawsuits that may affect your association’s chances of collecting assessments. If there is no first mortgage foreclosure lawsuit then there is a good chance a delinquent homeowner will pay their assessments to avoid an association foreclosure sale.
Will my association ever owe anything to a bank?
Nope. Surprising? It shouldn’t be since your association didn’t agree to pay the bank anything. All a bank with a first mortgage can do is foreclose and take title away from your association. The bank cannot, however, make your association pay anything. The debt is entirely the homeowner’s. Even if your association forecloses and takes title to a property before the bank finishes its foreclosure.
What if a bank files a first mortgage foreclosure?
If a bank files a first mortgage foreclosure lawsuit the bank will likely include your association in the lawsuit. It doesn’t mean your association owes anything. It just means the bank is addressing your association’s right to lien and foreclose on the property. If the bank foreclosure goes all the way to a judgment and public sale, your association’s junior / lesser right to enforce its lien rights will likely be foreclosed / wiped out.
Can my association respond to a first mortgage foreclosure?
Yes, in most circumstances your association can file what’s called an answer to a bank’s foreclosure complaint. Your association’s answer can assert its right under Florida law to collect at least some unpaid assessments. In addition, filing an answer can entitle your association to notices of events in the bank’s foreclosure case, including if there is a settlement, judgment, sale and, if there is a sale, whether there is any surplus money from the sale that can be collected by your association. There are strict time limits on making claims for surplus funds so getting court notices is important.
Can an association make a bank finish a stalled foreclosure?
Yes it can. Florida law allows community associations to file a motion in a bank foreclosure asking the court to order the bank to finish its lawsuit. A court can order a bank to finish its foreclosure unless there are good reasons not to. Good reasons include being unable to find and serve the homeowners or there is a legitimate dispute over whether the homeowners owe the bank anything.
Can my association collect anything from a bank if it forecloses?
If a bank forecloses and takes title to a home through a first mortgage foreclosure most community associations are entitled to the lesser of the following: 12 months unpaid assessments or one percent of the original value of the mortgage. This is sometimes called a bank’s “safe harbor” amount because it limits a bank’s liability to an association. Some older HOAs may find that their governing documents excuse banks from paying anything. We suggest that your association consult with an attorney to find out if your governing documents have this exemption. Most of the time this exemption can be amended / fixed.