HOA/Condo collections is an integral part of Murrell Law. Pursuing liens and lien foreclosures is not a fun aspect of association operations, but it is a very critical one. In our collections model, when we have a successful collection, the association receives all back-owed assessments, any accrued interest, late fees, and is even reimbursed for every penny paid to our firm.
PURSUING LIENS AND LIEN FORECLOSURES
Whether you ultimately end up choosing to file foreclosure or not, we strongly advise that you do the NOIL-Lien-NOIF process on any delinquent account. The initial step is to send a Notice of Intent to Lien (NOIL) letter. This is required by statute and provides a 45-day window for the owner to bring their balance current. If they do not get the account paid, the association can record a claim of lien against the unit in the county’s official records at the expiration of that 45-day time period. We then send a Notice of Intent to Foreclose (NOIF) letter. This is another statutorily required letter which provides a final window of 45 days to get the account paid. If no payment arrangements are made by that time, the association has the right to file a lawsuit to foreclose the lien. This ultimately results in the property being put to auction by the court similar to a mortgage foreclosure. The association’s lien foreclosure can extinguish all interests against the property except for a first mortgage.
Having said that, the vast majority of lien foreclosure lawsuits get resolved before they ever get to auction. Most owners will not allow themselves to lose their property over the usually somewhat small HOA balance. Sadly, the filing of the FC suit is the last piece of leverage that finally gets them to realize they can’t run from this and they pay. If they don’t, however, then the association gets a credit bid at the FC auction for the entire amount they are owed. This includes all back assessments, interest and late fees if applicable, as well as all associated attorney fees and hard costs related to the collections work and lawsuit (when we have a successful collection, the final cost to the association is zero as everything is recouped from the owner). At the auction, if a 3rd party bids higher than what we are owed (which is quite common), then they take title to the unit and we are paid in full. That is the homerun result we hope for. If no one bids at the foreclosure auction, then the association takes title to the unit. From there, generally the game plan would be to rent the unit out for as long as possible until the bank/mortgagee forecloses on top of us at some point down the road. We have seen associations not only recoup their money owed through this rental process, but sometimes even obtain a windfall. If there is no mortgage, then an owner is surely not going to allow the property to be foreclosed for the smaller amount the HOA is owed. If that did happen though, that means whoever got title at the auction would own it ‘free and clear’ and could sell it for full value. Again, the vast majority of files we initiate lien foreclosure on settle before the FC suit finalizes; and the times we do get the auction, the majority of the time we get paid off by a 3rd party bidder.
It is important to note that, while we have great success with lien foreclosures and they are a necessary tool in the arsenal for collecting on delinquent accounts, they are a calculated gamble as there is no guarantee of their success. We have systems in place that are effective at collecting, and not geared to just bill as many attorney fees on a file as unfortunately, many others in the industry do.