Thursday, March 20, 2008

Will the Sub-Prime Mortgage Crisis Impact Community Associations?

How many associations have seen units in their project enter foreclosure? How about yours? For every home that is in default on its mortgage, its a pretty sure bet that the assessments on that unit are also in default. Worse, however, while the lender might recover a % of its loan upon sale of the unit, the association will likely recover nothing. This is because an association's lien for assessments takes second place to the first mortgage. When the mortgage is foreclosed, so is the association's lien unless the community association takes the highly unusual step of bidding in at the foreclosure sale and buys the property. Otherwise the lien is lost and so is the right to the assessment unless the association wants to pursue the delinquent owner personally. Bankruptcy, or just plain disappearance of the owner can prevent even that, so the chances of recovering a delinquent assessment when the owner has no equity in the property are slim to none. This is not a small problem. There are over 200,000 community associations in California and many are in areas where foreclosures have risen rapidly. If your association has been effected, please tell us. We will be watching this situation closely in the weeks to come. 

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