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October 3, 2006
AARP: The Right to Security against Foreclosure
The Right to Security against Foreclosure An association shall not foreclose against a homeowner except for significant unpaid assessments, and any such foreclosure shall require judicial review to ensure fairness.
A lot of web sites make this their anthem, and it has appeared in front of numerous legislatures this year. Those that want to limit or get rid of this "last resort" trot out the same examples of senior citizens who have lost their homes for various reasons, and in doing so, usually leaving out pertinent facts. In 30+ years of dealing with thousands of associations of all types, I've never seen one, not one, that doesn't consider foreclosure a horrible thing to do, and who usually go to great lengths to avoid it, even to the point of putting the association's finances at risk. The question is, and AARP and the others continue to fail to address it - what's a viable alternative?
Don't even bring up money judgments or small claims--all the association ends up with there is a piece of paper saying that they have the right to collect 'X' amount of dollars. It still doens't put any money in the bank account. What are they going to do now, tow the family car, garnish the wages, have someone take him out behind the garage....they just don't work well.
Let's get a few thngs out of the way first - no problem with requiring judicial foreclosure instead of non-judiicial. As long as everyone understands that attorneys are going to handle it, resulting in legal costs. No association is going to start a judicial foreclosure without legal counsel, too many i's to dot and t's to cross. AARP acknowledges the right of the association to continue the foreclosure, even if the assesments are paid up, but the legal fees and other costs aren't. The advocacy groups out there reject this. They seem to think the other owners should shoulder the burden of this owner's failure to pay the assessments he or she agreed to pay.
Right of redemption, and sale at 75% of fair market value---no particular problem with either of these, although I'm sure the percentage will be argued around. It should be noted that this will add administrative and appraisal costs to the amount owed.
Applying any payments first to the assessments owed and then to fees or fines. The only reason for this is to leave the other owners holding the bag if the delinquent owner decides to just continue paying assessments. A fairer way would be to apply payments toward all items owed, based on each item's percentage of the total debt. In that manner, everyone who is owed money at least receives a partial payment, rather than be forced to carry their entire share of the debt.
AARP recommends a right ot cure---that the owner be given a chance to come up with a re-payment program, especially in times of financial hardship, illness etc. No problem again, as long as part of that solution is allowing the asociation to immediately file a lien on the property to protect the association's and other owners interests. Once that is in place the only question becomes what to do if the owner fails to meet the repayment agreement? Also, should the association have the ability to investigate the credit worthiness of the owner. It would probably be a good thing to know if they were making their mortgage payments.
AARP picks up another item pushed by the advocacy groups in setting a base minimum amount that has to be reached before foreclosure would be allowed. The number they use is $2,500 in back assessments. In California, the number is $1,800. The problem here is that don't take a time element or factor in the harm real deadbeats can do with this. In some homeonwer associations, $2,500 could be 20 years worth of assessments -- 20 years of a persons neighbors having to cover someone else's share of the costs. Advocates of this dollar limit like to point out the elderly couple in California whose home was foreclosed on for a few hundred dollars. They never bother mentioning that they hadn't paid in over 3 years because they were in a fight with their association. If you want a dollar limit, also set a time limit - one year should be more than enough. And while you're at it, lets put into state code what the court's have continuously ruled in favor of - that there is no reason to withhold any or part of an assessment. If you have a problem, then use the courts or whatever other form of dispute resolution is available to you (more on that in a later post). A lot of these silly foreclosures would go away if the legislatures more strongly reminded the owners of their self-imposed obligation to pay the assessment.
Last - AARP waffles on the right to foreclose for fines or legal fees, something the other advocacy sites want completely revoked. Just to re-iterate - give the assocaition an alternative that works and in a reasonably short time frame. Otherwise, back off.
The very first foreclosure process I went through was actually a game being played by the owner. He'd skip payments up to the point of receiving the first foreclosure notice, then make a partial payment. He wasn't short of money, he bought his teenage son a new Mercedes while this was going on. He kept this up for over two years, until the association went ahead with the foreclosure, even after a partial payment, because the legal fees had built up to quite a bundle. He miscalculated and ended up losing his home.
The point is, help those who need help, but don't make it easy for people to just screw over their neighbors.
Next up: The Right to Resolve Disputes Without Litigation
Posted by joewest at October 3, 2006 11:40 PM