With the increasing mortgage default rate causing more foreclosures, 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, including monthly maintenance fees, HOA fees, special assessments, and other condo fees. Before that, absent some atypical equitable circumstances, a bank that holds or services a mortgage on which an owner has defaulted does not owe due condo fees. In New Jersey, a foreclosure from filing to sheriff’s sale, can now take anywhere between 18 and 24 months. Evidence reveals that banks are adding to this 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 condo fees and special assessments. In the past, common interest community associations burdened with delinquent owners had a light at the end of the tunnel-Units with a default on mortgage are typically in default in the payment of condo fees and special assessments. The bank’s sheriff’s sale at least meant that regular condo fees 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 maintenance fees, condo fees, HOA fees, and special 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 monthly maintenance fees, condo fees, and special 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 sheriffs sale units, placing a lien on them and then foreclosing on the units 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 are burdened with an 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.