Berding | Weil Community Association ALERT Newsletter
Legal News and Comments for Community Association Boards and Managers Issue #104 • May 2013
Money Found at the End of the Rainbow:
A Homeowner Association Success Story
by Paul W. Windust, Esq.
Assessment collection in today's economic climate is a challenge. Especially frustrating is a situation where a non-paying unit owner remains in his or her unit without paying the mortgage or the assessment obligations (which sometimes include the owner's use of electricity or hot water). The owner can remain in the unit primarily because the lender will not foreclose and the association does not want to foreclose because the unit has no equity. However, one recent success story may signal one way to assessment recovery in an improving real estate market.
A one hundred and twenty unit project in San Francisco faced a common problem. A long-time owner in the community stopped paying her assessments as well as her mortgage loan. The owner was unemployed, so the association ruled out simply suing the owner for a money judgment that did not appear collectible. After five years of delinquency, the association reluctantly decided to use the typical process of non-judicial foreclosure of its assessment lien. The association attempted on many occasions to enter into a payment plan with the owner during the foreclosure process, but with no success. Eventually, the date for the sale arrived. No one appeared at the foreclosure sale to outbid the association because, at that time, the unit had little or no equity. As a result, ownership of the unit reverted to the association. The trustee issued to the association a certificate of sale, which signaled the start of the 90-day redemption period during which the owner had the right to pay the outstanding debt and collection costs and reclaim full ownership of her unit.
During the redemption period the association repeatedly reached out to the owner suggesting either payment plans or that she sell the unit so that a new, assessment-paying owner could take possession. The owner refused. At the end of the redemption period, the association recorded the Trustee's Deed, taking all right, title and right of possession of the unit. However, one problem quickly emerged; the former unit owner refused to vacate the unit. The association contacted my office for legal assistance and to develop a strategy.
Now, the association was faced with evicting the former owner so that the property could be rented or sold. I advised the association to attempt a “cash for keys” transaction where the association offered to pay for the former owner to move out of the unit. The former owner refused even this. Instead, she proposed a plan whereby she would repay the unpaid assessments and in return receive title to the unit. The association was open to this arrangement because it did not want to own or manage the unit, it just wanted the assessments to be paid and to recover its out of pocket collection costs. I drafted an agreement under which the former owner would recover title to the unit, but with all proper protections to the association. The association proposed a plan whereby the owner could, over time, pay what was owed in assessments, collection costs, and attorney fees and recover title to the unit. Despite the association's good faith intentions to enter into a deal whereby the former owner could regain title to the unit, the owner could not afford what the association required to finalize the agreement.
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