Thinking Beyond Foreclosure: Practical Alternatives for Community Associations

The power of sale to foreclose is an incredible tool of recovery available to creditors. However, community associations have practical considerations when utilizing a power of sale. First, there is cost. To foreclose by advertisement, an association must pay recording fees, service of process and publication costs, as well as modest attorney’s fees. Associations limited to foreclosure by action will need to double or triple those costs, as well as the length of time to confirm a sale and start the redemption period. Associations end up having to spend money to recover money they may not recapture for 6 to 12 months. These costs can be challenging for Boards to undertake when association resources are already stretched thin.

Another issue unique to community associations is that board of directors are made up of neighbors who reside near, or even next to, the subject of collective action. The Vice President at national bank exercising a power of sale on a mortgagor does not run into their mortgagor at the grocery store, the bus stop or Target. Don’t get me wrong, foreclosure of delinquent accounts is an effective and practical tool already contemplated for boards by statue or declarations. It is an essential tool that boards must be willing to utilize. That being said, there is also a tangible community impact to neighbors foreclosing on neighbors. At Smith Jadin Johnson, we offer community associations alternatives to foreclosure.

Early Referral

We encourage clients to refer delinquent accounts to our office at the 30-to-60-day mark. For a nominal flat fee, our office will send a letter to a homeowner that states, in everyday language, what a homeowner can do to bring their account current. Homeowners with multiple creditors may choose to ignore yet another communication from their association. But a letter from an attorney may get their attention, and sometimes getting a homeowner’s attention is all that is needed to resolve an outstanding balance.

Payment Plans

At Smith Jadin Johnson, we have a designated collections hotline where homeowners can contact staff – by phone or email – to talk about payment solutions that work for both the board and the homeowner. These communications are conversations, not demands. Again, we are talking to your neighbors. Arrangements for monthly payments make recovery immediately available to associations while throwing homeowners a lifeline to stem further delinquency. Payment plans are win-win solutions with minimal expense.

Lien sales

We regularly receive calls from third party investors interested in purchasing liens or sheriff’s certificates held by community associations. Why would an association sell their lien to an investor? First, it gets money immediately into the hands of the association. Second, it stops the output of costs and fees expensed. Third, investors want to protect their interest in a property, and therefore have every reason to keep ongoing dues current. Lastly, in cases where a senior lien is in foreclosure, sale of an assessment lien to an investor may maximize an association’s recovery, even in cases where the assignment yields less than full value. We can help your board determine if a Lien sale is right for your Association.

Small Claims Court

Finally, not every delinquent account should be foreclosed. Answers to questions of equity and lien status will inform a board that while foreclosure is an option, it may not the best option available. Declarations often authorize civil suits for an array of violations, including delinquency of accounts. Claims for money judgments filed in conciliation court often incentivize homeowners to immediately contact counsel to negotiate payments long before any hearing. That means in many cases, there is tangible recovery for associations long before monies would be recovered by foreclosure.

Conciliation Court can also be great option for associations with modest quarterly dues where accounts have been delinquent for more than a year. The costs of traditional foreclosure will far outweigh the expense of proceeding to conciliation court on a nominal, but delinquent balance.

At Smith Jadin Johnson, we offer comprehensive analysis with targeted action that sustains neighborhoods and builds relationships among neighbors. If your community association has any questions about how to best utilize practical and effective tools of recovery beyond foreclosure, please contact our office today.