For many years, the community association industry’s response t
o the pursuit of collection of delinquent assessments when a bank has filed a foreclosure action was to cease further collection efforts and await the completion of the bank foreclosure. Such a policy made sense when bank foreclosures took about six to seven months to complete. Today, bank foreclosures typically take as long as 2 or more years to complete. The change in trend is attributable to the following: Once a bank completes a bank foreclosure, the bank is responsible for limited unpaid assessments pursuant to Florida law but must pay assessments on an ongoing basis. The bank will also be required to maintain the property. Against this backdrop is the reality that the bank will add another piece of unwanted real property to their burgeoning inventory of units. The legislature and the courts have provided little incentive for lenders to move forward with its foreclosures.
The new strategy is for community associations to pursue its lien foreclosure action even though a bank is foreclosing on the unit. This replaces the former strategy of what is known in the industry as “lien and leave”, which occurs when the community association places a claim of lien on the property and does nothing further. A claim of lien does not benefit the community association in any way unless the community association is willing to foreclose it. The claim of lien does not place the community association into any higher priority with respect to a bank in foreclosure or in the event that the owner files for bankruptcy protection. Further, claims of lien have limited durability, subject to expiration. The “lien and leave” practice further sends a message to the other owners who are timely paying their assessments that there are no repercussions for nonpayment of their assessment obligations, leading to further delinquencies and an increase in the accounts receivable - further compounding the collection crisis for the community association.
The new strategy for community associations to pursue lien foreclosures have the following benefits:
1. To the extent that there is equity in the unit, when the unit is sold on the courthouse steps to pay the lien foreclosure judgment obtained by the community association, a competitive bidder will outbid the judgment held by the community association, resulting in payment to the community association from the proceeds of the sale.
2. Unfortunately, it is not the typical case where there is equity in the unit. In such event, the community association could bid at the foreclosure sale up to the amount of the foreclosure judgment and thereby obtain title to the unit. The community association would have a credit in the amount of its own judgment so that the cost outlay for the community association at the sale would be nominal as determined by the clerk. As owner of the unit, the community association has the following options:
A. The community association could rent out the unit without having to pay the mortgage or real estate taxes. There are considerations which the Jay Steven Levine Law Group will advise the community association relative to this rental option. Other than the cost of placing the unit into rentable condition, the community association would carry appropriate insurance to protect the interest of the community association. The community association would then collect monthly rental payments until the bank completes its foreclosure action, which could be years away (or when a tax deed is issued for delinquent real estate taxes which could be years away as well). Presently, banks have not been making rent claims against the community association, thereby enabling the community association to recover its past due assessments together with interest, late fees, costs and attorneys’ fees through the rental process.
B. As owner of the unit, the community association could produce a buyer and conduct a “short sale” like any other owner. A short sale is where the community association approaches the bank with an offer from a buyer desiring to purchase the unit at an amount which alone would be insufficient to satisfy the mortgage, and requests that the bank discount the mortgage to enable a buyer to purchase the unit. In this exercise, the community association would seek to recover its delinquent assessments together with interest, late fees, costs and attorneys’ fees as part of the short sale.
C. There is a novel approach endorsed by a Miami-Dade County circuit judge known as a “reverse foreclosure”. In the circuit court case, the judge approved of a process whereby the community association who obtained title to the unit in its own foreclosure action filed a Motion for Final Summary Judgment against itself and forced the transfer of title of the unit from the community association to the bank. This is a highly unusual procedural result since it is not customary that a party could seek a final judgment against itself, nor is it procedurally correct under the rules of civil procedure. Nevertheless, the Miami-Dade County circuit court judge did enter such a ruling. The Jay Steven Levine Law Group is hopeful that this procedure could be followed by judges outside of Miami-Dade County.
Our community association clients often ask the Jay Steven Levine Law Group how the community association may push lenders to hasten the bank foreclosure process. The community association has the following options:
1. The Jay Steven Levine Law Group could file a Notice to Set the Case for Trial, providing an outside timeframe for the bank to file its Motion for Summary Final Judgment, among other things, prior to the date scheduled for the trial. Although the bank could choose to simply dismiss the foreclosure action so as not to be required to go to trial, this procedure has been successful in causing the bank to file its Motion for Summary Final Judgment and force the sale of the property.
2. There are times when the bank files a Motion for Summary Final Judgment but does not schedule the Motion for hearing. In this instance, the Jay Steven Levine Law Group could set the bank’s Motion for Final Summary Judgment for hearing. The response from the banks could be to dismiss its foreclosure action, and other times the hearing was actually held and the property sold at foreclosure.
3. Where the bank actually dismisses the action, the community association has that much more time to pursue its own lien foreclosure action and then as owner of the property have the options mentioned above.
4. Another option for moving the bank forward is to file a Motion for a Case Management Conference on behalf of the community association. The Jay Steven Levine Law Group would ask the court to set specific dates as to when the bank’s outstanding Motions must be filed and heard, and when the banks must bring their case to a final resolution, which would result in the foreclosure sale being held by a certain date. This process will enable the community association to have a more clear timeline as to when the bank would take title to the unit and the community association begin receiving past due assessments from the bank.
5. In the instance when a bank obtains its final summary judgment of foreclosure and a sale date is set, but the bank continues to purposely delay the foreclosure sale by either not sending the representative to the foreclosure sale or registering with the online foreclosure sale system or does not publish proper notice of the foreclosure sale in the newspaper within the sufficient time period prior to the foreclosure sale and the sale is cancelled, a new option is available. Last week, a Miami-Dade circuit court judge sanctioned a bank for improper conduct for cancelling and purposely stalling the foreclosure sale. A sanction is a monetary punishment against the bank. The Jay Steven Levine Law Group could file a Motion for Sanctions against the bank for purposely stalling a foreclosure sale and ask the judge to sanction the bank for same and seek attorneys’ fees on behalf of the community association. This is another example of courts trying to crack down on banks who purposely stall foreclosures once a final judgment has been obtained. Although this case was issued by a Miami-Dade circuit court judge, the Jay Steven Levine Law Group is hopeful that other judges outside of Miami-Dade County would follow the same guidelines. This option is different than the old Motions to Compel that have been overruled by one appellate court, because it is a sanction and only available upon the cancellation of a foreclosure sale by the bank.
An additional line of thinking is for the community association to obtain a money judgment against the owner for the delinquent assessments, interest, late fees, costs and attorneys’ fees. This approach makes sense when the community association does not wish to own the unit, but where the owner has other property or assets in Florida which could be taken in post judgment collection procedures to pay the money judgment obtained by the community association. When the Jay Steven Levine Law Group files its lien foreclosure action, there is a second count that seeks a money judgment. At the time that we are ready to file our Motion for Summary Final Judgment, one of the attorneys with the Jay Steven Levine Law Group has a discussion with the community association to present the option of lien foreclosure or money judgment and then elects which remedy to pursue when the Jay Steven Levine Law Group asks for the judge to enter a summary final judgment.
The Jay Steven Levine Law Group has been successful in obtaining the well known blanket receivership for the community association, wherein the community association is able to collect rent from investor owned units where the investor/owners are pocketing the rental payments and not paying the assessments. This requires that the owner is currently in a lien foreclosure action filed by the community association. However, there is a new alternative to consider that is different than the well known blanket receivership: To have a global receiver appointed even when the unit is not in a lien foreclosure action filed by the community association. This is because this new type of receivership is based on the principles of equity and fairness. The Jay Steven Levine Law Group is looking forward to filing petitions on behalf of community associations to pursue this new alternative to the well known blanket receivership.
There is no question that these are trying times for community associations because of the mounting accounts receivable due to delinquent assessments. Even so, there are options for the community association which should be explored to maximize the recovery of these delinquent accounts. We continually develop strategies and solutions in this ever changing economic environment including representing community associations in short-term financing. The Jay Steven Levine Law Group looks forward to discussing these options further, whether in the form of a telephone conference with the Directors or attendance at a Board meeting. Once community associations and their managing agents better understand that there are options available, the Directors will be able to make an informed business decision.
About the Jay Steven Levine Law Group
The Jay Steven Levine Law Group specializes in Florida community association law and Florida commercial litigation. The lawyers at the Jay Steven Levine Law Group have over a combined fifty years of legal experience, maintaining offices in Boca Raton, Palm Beach Gardens, Fort Myers and by appointment in Naples and the Treasure Coast.
For more information about the Jay Steven Levine Law Group, please email jsl@jsllawgroup.com. Additional information may be found at http://www.jsllawgroup.com
