Q: We have delinquent owners who are now more than $6,000 behind in their quarterly maintenance payments. A notice of their delinquency was sent on March 19, 2009. The second quarter payment was due April 1 and has not been received as of this date (April 14). A public record search shows mortgages far in excess of equity and this combined with a federal tax lien and final judgments against the property owner led us to believe they are just keeping their money and possessions as long as possible. Please let us know what our options are and your recommendations.
A: Florida law contains limited, but strong options for associations. It empowers condominium associations with the ability to file a claim of lien against the delinquent unit and, thereafter, foreclose upon that lien. All costs and attorney’s fees associated with the collection efforts are included in the lien and the claim against the delinquent unit owner. In addition to being a lien against the property, claims are a personal obligation of the individual owners. These are considered to be powerful remedies. When there is no equity in the unit, it is likely that the association will be the successful bidder at the foreclosure sale after it obtains a judgment.
In our current economic climate, lender foreclosures are averaging 18 to 24 months to complete, although there is no rule of thumb as to how long it takes them to start. During this time period, owners are often living within the condominium without paying for anything. This has been a sufficient source of concern to many of our association clients and many have changed their “traditional” thinking of what to do when a lender foreclosure is pending. In the past, once a lender began the process, associations would stop their efforts since the lender was ahead of the association. Now, since we complete our non-contested cases in typically four to six months, associations can take title to the “upside down” units while they wait for the lender. Once the association owns the unit, it has the options of an owner. This includes renting out the property until the lender forecloses, which can recoup a significant sum of money for many associations; attempting to negotiate a short sale, which is selling the property for an amount less than what is owed on the mortgage in the hope of bringing a new owner who will commence paying; or, holding the property until the lender forecloses. This latter option is typically chosen when the unit has been “trashed” by the former owner on the way out, leaving it in a condition that would require too great of an investment to put it into habitable condition. When the association takes title in this fashion, it will not pay on the mortgage or the property taxes but will make sure to have minimal insurance coverage (liability) on the property.
An existing federal tax lien against the unit owner adds to the problems of dealing with a delinquent owner. The foreclosure of the association will not eliminate these liens, so subsequently selling the property, even on a short sale, will require cooperation of the IRS. While not impossible to achieve, it does add to the complications involved. It would not, however, preclude a rental of the property until the lender completes its foreclosure.
From the facts as we have them here, Kaye & Bender’s recommendation is to proceed with the collection process on the unit. Recent amendment to Section 718.121 F.S. requires the association to send a 30-day notice of its intent to lien before a lien can be filed. Thereafter, there is another 30-day notice requirement of the lien before a foreclosure can be commenced. As such, it takes at least 60 days before we can start a foreclosure. Many unit owners pay within this time period, recognizing that it is less money to pay the association than to find new housing, even if they will ultimately lose the property to the lender. This can occur at any stage of the proceeding. If, however, the current unit owners fail to pay, we would move the matter through the foreclosure process and the association will likely ultimately take title to it. At that time, the current owners can be removed and then the Board may deal with the unit as indicated above.
