Collection through Non-Judicial Foreclosure
When homeowners fail to meet their obligation to pay their monthly assessments as required, it becomes the responsibility of the community association to collect the assessment from the homeowner. This creates an uncomfortable situation for both the association and the homeowner and must always be handled with the utmost professionalism and in a respectful manner.
When this situation occurs, the community association will most often use the services of a lien collection company such as S.B.S. Lien Services to handle the collection process for them. We handle the entire process of collecting the past due assessments, from sending the initial demand letter, to collecting on the lien, to the actual auction or sale of the property if it becomes necessary.
The good news is that in our experience, because we handle the process in a totally professional and respectful manner, our collection activities rarely come to the point of having to foreclose or sell a property. Neither party wants this, and a quick resolution is the desired result both parties are always looking for.
How the Collection Process Works
The most common approach we take to collect delinquent assessments is to record a lien for the amount of the assessment owed, plus all fees and charges and then proceed with a non-judicial foreclosure if the homeowner still does not bring the account current.
The Demand Letter
In the first step of the process we prepare and send out the initial demand letter to the homeowner. The letter will notify the homeowner that the debt has been referred to S.B.S. and then specify all assessments plus fees and costs owed. The owner has 30 days from receipt of the demand letter to pay the total owed, or the process goes onto the next step.
Filing the Assessment Lien
If the homeowner fails to respond to the demand letter and fails to the pay the balance owed, the process goes onto step two. S.B.S. will then file an assessment lien against the homeowner. The assessment lien secures the association’s position and protects its interest in the property. The lien protects the association if the homeowner transfers title to a third party or files for bankruptcy. It also ensures, in most cases, that the total amount owed will be paid, if and when the property enters into escrow and gets sold. The homeowner again has 30 days to pay the amount owed, or the process goes onto the next step.
The Foreclosure Process Begins
S.B.S. is usually very successful at avoiding the foreclosure process by the time the first two steps have been completed and it becomes necessary to actually begin the foreclosure process. (Foreclosure Timeline)
When the homeowner does not respond to the demand letter and does not satisfy the assessment lien, a ‘Notice of Default’ is recorded and the actual first step in the actual foreclosure process begins. When the ‘Notice of Default’ is recorded, S.B.S. sends out a mailing notifying all parties with any interest in the property and the homeowner then has 3 months to satisfy the lien. A ‘Trustee Sale Guarantee’ (TSG) is obtained to verify that all parties with a recorded interest in the property have been notified. The TSG is important because it lists all encumbrances against the property, but also provides liability insurance covering negligence on part of the title company.
The Notice of Sale
If the homeowner does not respond to the NOD within the 90 day waiting period, S.B.S. will contact the association to obtain authorization to schedule the foreclosure sale. The Notice of Sale (NOS) is then published in a judicated newspaper once a week for three consecutive weeks prior to the sale.
Then the Notice of Sale is actually posted on the property itself. This step is quite often enough to convince a non-responsive and delinquent homeowner to contact S.B.S. and make some type of arrangement for payment.
At this point it is still up to the association to postpone or cancel the foreclosure prior to the sale, so this is an important stage of the process and can often lead to an opportunity for the homeowner to resolve the account.
If there is no resolution and the property is foreclosed upon, there are two outcomes.
The property can be sold at auction, with the association being awarded the delinquent assessment and fees and the new owner is responsible for all new assessments.
If the property is not purchased at auction, it reverts back to the association and the association can recoup their loss by renting out the property or placing the property for sale on the open market. (Now You Own It)