Homeowners associations in condominium and townhome developments have a lot more power than some people think. Yes, associations are responsible for maintaining common areas using the funds collected through homeowners' dues payments and interest earned on investments. The association is also responsible for promulgating and enforcing the rules and regulations of the community.
The most basic rule, of course, is that an owner pay his dues. When an owner falls behind, though, he may be surprised to learn that the association can not only put a lien on his mortgage but can initiate foreclosure proceedings. The association has a lot of power.
During the real estate boom, filing a lien and going through a foreclosure was no easier than it is now. What was different was that associations had more time and more money, so foreclosing was a harsh option but not one that was immediately dismissed when a problem arose.
Needless to say, the real estate bust and the foreclosure crisis put homeonwers associations in a different boat. Chances were that a homeowner feeling the financial pinch would let his association dues go before he'd stop paying his mortgage; if the homeowner's lender foreclosed on the unit, it could mean that the association would wait months if not years to see any dues income from that unit. If the association had filed a lien, it would be behind the mortgage in priority and would likely go unpaid. The money spent filing the lien was just gone.
What to do? We'll get into that in our next post.
Source: NorthJersey.com, "Homeowners associations find short sales an option to recoup losses," Kerry Singe (The Charlotte Observer), March 17, 2013
Our firm works with clients on real estate transactions similar to the ones discussed in this post. If you are interested in learning more about our Annapolis, Maryland, practice, please visit the real estate page of our website.