As a Board member of a homeowners association (HOA) you will be faced at times with making decisions to foreclose on homes in your Association. This is not a pleasant task, but it is a necessary one at times. Some homeowners will challenge the entire process and you and the Board should know what you are doing and why.
Over the past few years, homeowners all around the nation have been faced with financial challenges and uncertainty. A weak economy has contributed to the difficult money concerns that many have had to face. This led to a rise in foreclosures which has slowed down recently, but is still an issue.
There are mainly two reasons for foreclosures in a homeowners association:
- Homeowners can't or have chosen not to pay their mortgages.
- Homeowners can’t or have chosen not to pay HOA fees.
Many owners don't realize that even if they are current on their mortgage payments but behind on Association fees they can have their home foreclosed on. As an HOA Board you should make sure that you meet your obligations according to your collection policy, but in the end moving toward foreclosure may be the only answer.
Board members in the homeowners association need to be prepared when foreclosing on a property in the community. Making sure everything is in order and documented is essential. Your collection company will help you to make sure that you are covering all the bases. This will help prevent any credible challenges to your actions. Here are some tips on being ready to present your case for sending an account to collections and following the course toward foreclosure proceedings in your homeowners association:
- The Board should meet and go over the entire collection and foreclosure process. Your collection company and/or association attorney can help you understand this process. Every member should understand the process and what their particular role in the proceedings are.
- Make sure your homeowners association is authorized to carry out foreclosures. Homeowners may use the defense that the HOA is not authorized to carry out such action. Review pertinent documents in your Association and insure you can legally take steps to foreclose on properties.
- Following all rules, regulations and laws is vital in the process. Any misstep by the HOA Board can cause a collection account leading toward foreclosure to be dismissed for failure to follow your documents or the law. Working closely with your collection company and/or attorney is advised.
- Check to see that all of the accounting dealing with any particular account is in order and correct. The homeowner will likely want to see financial documentation.
- In your homeowners association there will be rules regarding how payments for fees and such are applied. Review these payments and make sure the Association has applied them correctly.
- Near the beginning of the collection and foreclosure process the Board will generally authorize a lien on a property (lien – also referred to as a Notice of Delinquent Assessment). This must be authorized by the Board in an open meeting. Ensure that you are recording the lien correctly. This is where your collection company can again make sure that things are done correctly on your behalf. You don’t want to give a homeowner a reason to challenge the foreclosure process by not dealing with the lien process correctly.
- Be aware that a homeowner has the right to buy back his property for a certain length of time – a 90 day redemption period.
Foreclosures are a tough undertaking for any homeowners association. As a member of the Board you have to step up and do your job during this time. It's necessary for the proper administration of your Association.