Delinquent Condo Fees and Foreclosures

P.D. from New London County writes:

Dear Mister Condo,

I read a lot in your blog about foreclosure when a condo owner is delinquent with monthly fees. Two questions: Can foreclosure be initiated over an unpaid special assessment? What level of delinquency are we talking about? Would it be a certain proportion of the value of the condo unit?

Mister Condo replies:

P.D., as you know I am not an attorney so please accept my response as friendly and not legal. Foreclosures are quite legal proceedings and I strongly encourage your association to seek proper counsel if faced with the type of action against a unit owner. I certainly hope you don’t have to take as drastic a measure as foreclosure on any of your association unit owners to collect common fees or assessments but if you do there are a few factors to keep in mind and guide you on your journey. Your by-laws have provisions on when common fees and assessments are due what actions the association can take to collect those monies due to the association from unit owners. Typically, most associations have clauses that provide for penalties for late payments. These penalties are usually modest and typically kick in after 10 days. For instance, if common fees are due on the 10^th and are not paid until after the 20^th a $10 late fee may apply. This is a simple tool to keep the common fees coming in to the association on a regular basis. At 30 days, a collection action usually begins. It could be a letter demanding payment and it could be issued by the association, its property manager, its attorney, or an outside collection agency.

Special assessments are a bit different and are typically handled as due within a certain number of days they are issued. Some associations offer payment plans on assessments; others simply issue the assessment and expect payment. In many cases, the condo by-laws simply state that special assessments are due when levied. If the payment is not made in timely fashion, the process is similar to collecting overdue common fees as mentioned above.

In either case, it is possible that a unit owner is unable to comply with the demand for payment at which time the Board may choose (or the by-laws may require) more aggressive actions. Typically, if the collection efforts have escalated to the attorney level, 60 days is the common time to begin a foreclosure action. The amount in question is not the issue; it is the length of delinquency. There is significant cost to the association up front to collect this money and those fees are typically added to the delinquent amount that will be sought through the foreclosure action. Because of the amount of the investment, it is not uncommon for the amounts to be significant. In other words, if the association is owed $50 because a unit owner forgot to remit an extra $25 per month when the common fees were increased, a foreclosure action isn’t too likely. However, if the same unit owner hasn’t paid any common fees for two months, the foreclosure action may be completely warranted.

As a matter of practicality, the association will often wait for a mortgage holder to lead a foreclosure action and the association will tag along and wait for the disbursement of funds that the foreclosure will bring. It is quite common for a unit owner to forego mortgage payments before common fee payments so this approach makes for a logical choice. However, the association does not have to wait and can, in fact, be the initiating claimant in the foreclosure. In the past few years, there has been a slowing pace for mortgage holders to foreclose on delinquent mortgage borrowers. This has lead to more associations taking actions against unit owners in an attempt to minimize their losses. In the association where I live, such an action was taken against a seriously delinquent unit owner. The association prevailed and foreclosed on the unit and regained all but a few hundred dollars of the thousands it was owed.

So while there may not be a specific dollar amount that triggers the decision to foreclose, there are clear factors that weight into the decision. The foreclosure is the final and ultimate tool in the association’s arsenal when it comes to collecting its monies from delinquent unit owners. It isn’t pretty and it can be costly for all parties involved but it is the ultimate measure the association can take to protect itself and all other association members from losing money and providing the delinquent owner with all of the services and protections of being a community association member. Good luck, P.D.!