Foreclosure
Q. Our association has two owners who failed to pay a $3,500.00 special assessment. Fortunately, we recorded liens against all owners. Everyone was given 90 days to come up with the funds. These folks haven't even contacted us or responded to our letters. I have heard that we can foreclose on our lien. What is involved in this process? Can the association bid at the sale?
A. This is a great question because there are clear rights now in the Virginia statutes regarding foreclosure on liens for assessments; however, exercising those rights requires some serious homework before "pushing the button to launch."
Basically, foreclosure on an assessment lien upon a default by the unit owner is a process very similar to a foreclosure on a deed of trust held by a mortgage lender. The "executive summary" version of the process is that the owner is notified that the foreclosure is imminent and given a final date for payment which is not less than 60 days from the date notice is given. If payment in full is not received (or other arrangements satisfactory to the board are not made), then a sale date is established and advertisement in the newspaper is initiated. All junior lienholders holding notes must also be notified so they have a chance to bid at the sale to protect their interests.
But, let's look at the preliminary practical steps that should be taken by any board of directors prior to initiating an action to foreclose on a lien.
(1) Go look at the property to determine its condition and desirability - the desirability of the property to a buyer is one consideration in whether or not to exercise your right to foreclose.
(2) Ask your attorney to obtain a title update to determine what other liens have been filed of record against the subject property. Since the property is sold subject to certain prior liens, this may affect your decision as well because buyers at foreclosures are looking for "a deal" - not to pay fair market value. If the total liens which are superior to the association's lien plus the association's lien approach or exceed fair market value, then the property will not likely be found desirable to a buyer who will not be able to view the interior of the property prior to purchase. Under the Virginia Code, liens which are superior to the association are: real estate taxes, first mortgages and mechanic's liens; however, IRS liens are a concern as well.
(3) Consult with your attorney about the costs involved in foreclosure - they are considerable. These costs may be recovered in a successful foreclosure; however, the sale may not be completed. The costs can run as much as several thousand dollars.
(4) Consider whether or not the association should be a bidder. The statute allows this to occur, but if the unit is in poor condition and will cost a significant amount to put in saleable condition and/or the cost to purchase is too high, it may not be a successful venture in the end for the association. Also, the association may not be in a financial position to be a successful bidder and pay off the superior liens. Close scrutiny of the legal and practical consideration by the board is essential.
The lien foreclosure rights are a powerful collection tool and often force a unit owner to find a way to pay off their debt to the association, but you should first consult with an attorney experienced in those matters so that you make the right decisions and have the best chance of success. The law has many technical requirements which must be met since you are seeking to force the sale of real estate.