Strategies & Issues Associated with Bank and Mortgage Company Unit Owners Failing and/or Refusing to Pay Association Assessments
As more and more residential mortgages go into default, and then into foreclosure, more and more units within associations are owed by banks and/or mortgage companies. In New Jersey, once a unit is sold, including by virtue of a sheriff's sale, the purchaser is liable for all assessments and fees going forward. Before that, absent some atypical equitable circumstances, a bank that holds or services a mortgage on which an owner has defaulted does not owe assessments. In New Jersey, a foreclosure from filing to sheriff's sale, can take anywhere between 18 and 24 months now. Evidence reveals that banks are adding to these situation by delaying their foreclosure efforts - in order to avoid the sheriff's sale by which those banks will then become obligated to pay regular, ongoing assessments. In the past, associations burdened with delinquent owners had a light at the end of the tunnel (Units in default with respect to their mortgages are typically in default in the payment of assessments) - the bank's sheriff's sale at least meant that regular assessments with respect to that unit would start coming in. Banks would rather avoid taking on additional non-performing assets with no equity, with respect to which they would also have to begin paying monthly assessments and other costs. This has forced associations to continue their own foreclosures and/or collection actions as there is absolutely no certainty that the bank holding or servicing the relevant mortgage will even finish its foreclosure, take title and begin paying assessments. These association efforts include their own foreclosures and rent receiverships.
The overall economy, banking and mortgage system trouble and the overall real estate market has also resulted in units that have become owned by banks, etc. but that are not paying regular assessments. Some of this stems from the fact that it is not always clear who is legally responsible for the payment of those assessments. During the "housing boom" of the past several years, mortgages were widely originated by a lender and then sold to a Wall Street firm, which "pooled" the mortgage with others to create a mortgage-backed security that was sold in pieces to investors. Mortgage-servicing companies, which typically are units of banks, are hired to collect the mortgage payments from homeowners and distribute the proceeds to the various investors. Servicing companies argue it is the bank that must pay the ongoing assessments. The bank, obviously, argues otherwise. Associations can take advantage of this - or at least mitigate the negative consequences of it - by aggressively targeting all post sheriff's sale units, liening them and then foreclosing on them thereafter. These units will typically be free and clear of other liens and/or judgments and thus are attractive targets. Further, the units are typically vacant such that during the pendency of the association's foreclosure against the bank's unit, the association can seek a rent receivership by which a tenant can be placed; one that will pay monthly rent of any market-set amount during the pendency of the foreclosure.
Associations burdened with a ever increasing number of delinquent owners but continue to be vigilant in order to minimize the impact to the other owners. Boards should be aggressive, creative and realistic when addressing the actions and/or inactions of banks that hold or service mortgages in their associations.
