The Association Foreclosure

Most people know that an association can foreclose a lien.  However, most people do not understand how the association foreclosure works.  This was brought to my attention when a client came into the office.  He had just purchased two association foreclosure judgments and he wanted title insurance on his newly acquired property.  He thought he had gotten a real bargain wanted to know what to do next.

I am always skeptical of judgments, so I asked a few simple questions:  How much did he pay for the judgments? He replied that he paid $10,000 for one and $15,000 for the other.  I asked if anyone was bidding against him.  He responded “no”.  We decided to first to a title search on the property, this would determine if he had good title.  However, I did not have a good feeling about his purchases.

A few days later the client was back in the office for a follow up appointment.  I had to break the bad news to him.  Yes, he nows owned two condominium units, but both had superior mortgages on them that will be foreclosed.  How is this possible?  Very simple.  The association has the right to place a lien on a property for unpaid assessments.  Additionally, if the assessments do not get paid, they can then place a lien on the property.  Next, they can foreclose the lien just as any other lender.

The biggest concern from an investor’s point of view is priority of the lien.  Associations liens are usually inferior to the interest of a first mortgage.  Because they are inferior, an association can never wipe out a first place mortgage through a foreclosure.  Unfortunately, my client spent $25,000 to learn this lesson.  Most attorneys who are familiar with associations, would rather meet with a client who would like to learn how to correctly bid on judgments rather than letting them find out the hard way.

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