Sunday, November 14, 2010

HOAs give lenders ultimatum; Florida courts bless strategy

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."


Click here for The L.A. Times story.

So in addition to REOs, now we'll have HAOs (Homeowner Association Owed) properties. The legal strategy has national implications, 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.


Anonymous said...

Should an HOA corp be permitted to acquire a member's property at a foreclosure sale or only be permitted to divest a member of the member's property? (I prefer neither but let's go with it for now).

If an HOA acquires a member's property via foreclosure, doesn't the HOA corp become a member of itself? (should not be possible). Given that every member must pay assessments, does the HOA corp now owe assessments to itself? If the HOA corp does not pay, does the HOA corp have the ability to foreclose on the HOA corp such that the cycle repeats itself....unless HOAs are not permitted to acquire property from a member via a foreclosure.

Anonymous said...

I don’t know if you’ve read the complaint filed by ALG, but if you haven’t, it’s readily available. ALG alleges, amongst other things, that when the clerk recorded the Certificaate of Title after the condo’s foreclosure action, the condo’s title was superior in dignity and right to the bank’s mortgage.


Since when does a junior lien holder wipe out a superior lien holder simply because jr. forecloses first? That sounds pretty shaddy to me. It defies hundreds of years of American jurisprudence.

Also, the fact that ALG has left out so many details, especially the value of the unit and its condition, makes me believe this was just a PR stunt to try and lure in associations hoping they can get the same result for their significantly higher priced units.

I’d love to see ALG try and pull this PR stunt with a $250K unit and see what happens. I doubt their reliance on the Magna Carta is going to get them very far.

Also, their claim that the mortgages are unreasonable alienations of property rights simply because what’s owed exceeds the value of the property is less than bunk. According to their “theory” every mortgage is an unreasonable alienation on property rights if the property is upside down. If they believed this nonsense they’d be out wiping ot mortgages on homes all across Florida so homeowners could have a free & clear property. You’d think they’d make more money doing that, if it was legit, than what they’re trying to do with the “Mortgage Terminator.”

Unfortiunately, associations are so despearate right now they’re willing to drink the sand if someone tells them it’s water. In my opinion, that’s a pretyy unethical thing to do.