In too many cases, lenders are failing to foreclose on troubled assets, regardless of whether the owner is a troubled borrower or a secondary lien holder. In many cases, they are either waiting for the market to clear so they can sell the distressed assets at a better price, or they don't want to pay the dues and/or assessments required from owners.
Whatever the reason, lenders that drag their feet are leaving associations in the lurch. But with the Mortgage Terminator maneuver, says Association Law Group partner Solomon, associations can take the title to the property and then force the primary lien holder to initiate its own foreclosure proceeding or release its mortgage so the association can sell the unit to cover what it is owed.
Three times now, Florida courts have upheld the tactic, which Solomon calls "a legal strategy that finally gives banks a legal ultimatum."
---------------------------------------------The Times reports, since it is not based on state law.
I'm guessing HOAs don't want to hold distressed properties either since that adds to their financial burdens. Taking over these limbo zone properties won't remedy the fact they aren't generating assessment revenue. That circumstance and the need for income to cover the cost of holding HAOs could compel HOAs to become landlords and place these properties on the rental market. But that could also have negative implications for HOAs given secondary mortgage market rules that disfavor purchasing loans in HOAs with too many rental units. So they'll probably quickly dispose of them at fire sale prices as the Times article suggests.