When a member of a homeowners association consistently fails to make assessment payments, the board of a homeowners association may place a lien on the delinquent homeowner’s property for the amount owed in unpaid assessments. If the parties are unable to come to an amicable resolution after the lien is placed on the property, there are two avenues of foreclosure available to an association: judicial foreclosure and non-judicial foreclosure. Historically, Feldsott, Lee & Nichter has focused predominately on judicial foreclosures; however, our office has expanded our practice area in the last few years to include non-judicial foreclosure in response to changes in the real estate market, which has made them more viable than ever before.
Judicial foreclosures are foreclosures that require a formal legal action against the homeowner. The greatest benefit of foreclosing a property through litigation is that it yields a secure title, which is harder to challenge in a subsequent legal action. The downside of this approach is that judicial foreclosure can be a lengthy process. Judicial foreclosure proceedings go one of two ways depending on the homeowner’s actions. If a homeowner does not respond to the Complaint for foreclosure, the most common scenario, the process will average in length from a few months to around a year and a half. If the homeowner responds to the Complaint and challenges it, the process will take well over a year.
Non-judicial foreclosures take place without the association seeking assistance from the court. This type of foreclosure has the benefit of being much quicker and requiring much less red tape to proceed. The downside of a non-judicial foreclosure is that it provides a weaker legal title than a judicial foreclosure and there is the risk of the homeowner attempting to raise a wrongful foreclosure suit within three years of the sale. On average this process takes about five (5) months.
Both judicial and non-judicial foreclosures start with the association placing a lien on the delinquent owner’s property, followed by a notice of intent to foreclose. Under judicial foreclosure, the notice of intent is followed by a summons and complaint, such as would be filed in any legal proceedings. If the homeowner fails to provide an answer to the Complaint (the more common and more desirable outcome), then the association can file for a default, which would allow them to automatically prevail in the suit and foreclose upon the property in question. The other alternative is that the owner timely responds and a lawsuit proceeds with the association being entitled to foreclose upon success in the suit. In both cases, the Association will receive attorney’s fees if it is successful in receiving a judgment against the homeowners.
In a non-judicial foreclosure, the homeowner has thirty (30) days to respond to the notice of intent. This notice must address the homeowner’s financial situation and options to avoid foreclosure, as well as, informing they have a right to ask for a meeting to talk about how to avoid foreclosure. If the homeowner requests a meeting to discuss the foreclosure, it must be scheduled within fourteen (14) days. If the property owner and association are not able to reach a resolution, then the association can file a notice of default. If the owner fails to remedy the delinquent assessments ninety (90) days from receipt of the default, the Association can record a Notice of Sale. The Association can then sell the property via public auction twenty-one (21) days after the Notice of Sale.
Both judicial and non-judicial foreclosures have their benefits and downsides. In straightforward cases where homeowners are not particularly litigious and/or do not have any strong challenges they can raise against the foreclosure, non-judicial foreclosures can save an association a significant amount of time than taking the matter to court. On the other hand, in matters with a particularly complex set of facts or a potential challenge to the amount owed in assessments, a slower but more sure judicial foreclosure would be the more prudent choice. If you have any questions regarding either type of foreclosure, we invite you to call to speak with us personally at (949) 729-8002 or email us, and our experienced attorneys will be happy to assist you.