The foreclosure process can be a useful tool for some associations when dealing with a habitually delinquent member. Often times, the threat of foreclosure can persuade a homeowner to pay assessments when traditional collection methods have failed. And if not, once all is said and done, the homeowner who is removed from the association will ideally be replaced with a new owner who is more diligent in his or her obligation to pay assessments. Although the sale of a property by foreclosure typically does not recoup all past due assessments, there are certain circumstances which may lead to the association’s recovery of the full amount owed to it.
For those associations subject to the Georgia Condominium Act or the Georgia Property Owners Association Act (the “POA”), the law grants the association an automatic statutory lien for any amounts owed to the association. This means that, by law, once an owner owes the association money, a lien is automatically created. Any and all amounts owed to the association are not only a binding personal obligation, but the lien attaches to the delinquent owner’s property.
If the lien is in the amount of $2,000.00 or more, the Condominium Act and the POA also grants the right of a judicial foreclosure, subject to any superior liens existing on the property. A judicial foreclosure is a court ordered foreclosure. Superior liens are any other existing liens on the property which have a higher priority under the law than the association’s lien. For condominium associations and those associations subject to the POA, the only liens which are superior to the association’s lien are first priority mortgages on the property, property tax liens, and, in some cases, liens created by secondary purchase money mortgage.
Foreclosing “subject to the superior lien” means that the association can, once it obtains an order of foreclosure, foreclose on its lien without having to pay off the superior lien. If an association forecloses on its lien, and there are superior liens on the property, the superior liens will remain on the property, and the superior lienholder can foreclose at a later date, if warranted.
To initiate the process, an association must send a notice of intent to foreclose to a delinquent homeowner. The notice must provide the homeowner 30 days from the date of the notice to pay the amounts owed. There are additional legal requirements that the notice must comply with, so an association’s attorney will generally prepare and send the notice.
If the homeowner fails to respond to the notice, the association will then file a civil suit for judicial foreclosure of its lien. This suit will proceed in the same manner as other collections suits against delinquent homeowners. The homeowner must be served with process and a judgment must be obtained from a judge before the association can proceed with the foreclosure on the property. If the delinquent owner cannot be located for personal service, the association may be able to serve him or her by publication in the official local legal organ newspaper. Service by publication may prohibit a personal judgment against the owner, however the association can usually proceed with a court order permitting the foreclosure.
Once the association has obtained a final judgment and order of foreclosure against a homeowner, it must send a package with required documentation to the sheriff’s office in order to initiate the actual foreclosure process. The required documentation will vary from county to county – for example, some counties require an association to provide a detailed title examination while other counties perform their own title searches. Upon receipt and review of the required documentation, the sheriff’s office will then set a sale date – the timing of which will also vary from county to county.
Once a sale date is set, the local sheriff’s office will advertise the foreclosure sale for four consecutive weeks in the county legal organ newspaper. At the conclusion of the advertisement period, if the homeowner has still not paid the amounts owed or a settlement agreement has not been reached, the property is then sold at an auction conducted by the local sheriff on the courthouse steps on the first Tuesday of the month the foreclosure is scheduled to take place.
Foreclosing associations may bid on the delinquent owner’s property at the auction. An association may want to bid up to the amount of its judgment in the hopes that its entire judgment will be paid off by a higher bidder. In the alternative, the association may only want to bid enough to ensure that the delinquent owner does not try to buy the property at the sheriff’s sale. Although some counties will grant associations a credit to bid up to their judgment amount, other counties require the successful bid to be furnished by certified funds by close of business on the same day as the sale. Therefore, a bidding association should be prepared to obtain the required funds made payable to their local sheriff’s office on immediate notice.
If the subject property is encumbered by a substantial mortgage then it is unlikely (although not unheard of) that the bidding will escalate up to the judgment amount. If the association is the winning bidder, then it will take title to the property subject to the existing mortgage and any other superior liens. By taking title to the property, the Association does not assume the obligation to pay off the mortgage holder on the property or any other superior liens. However, in this scenario, the association’s strategy going forward will depend on its end goal. The most straightforward option is to simply allow the mortgage holder to foreclose its security deed, with the final purchaser hopefully being a dues paying member. This can take months or even years, depending on how quickly the mortgage holder acts to foreclose on the property. During this time, the Association may try to lease the property on a month to month basis, if only to recoup a portion of the delinquent assessments it was owed. The association may also seek to negotiate with the mortgage property and keep title to the property. The association could then rent out or sell the property at a future date.
After purchasing the property at the sale, the new owner is given a sheriff’s/marshal’s deed, evidencing the new owner’s ownership of the property. The new owner must then proceed with an eviction action to lawfully possess/occupy the property. This process is similar to the process used by a landlord to evict a tenant and requires the new owner to go to court to seek a Writ of Possession. Once the Writ of Possession is granted to the new owner, the sheriff’s/marshal’s office is notified that the former owner should be removed from the property. The sheriff/marshal will then go to the property and provide notice to the owner of the eviction, typically giving the owner seven days to vacate the premises.
If the former owner has not vacated the property within the allotted time, the sheriff/marshal will return to the property and remove the former owner and their possessions from the premises. Once removed from the property, the locks are changed so that the former owner can no longer gain access.
The entire foreclosure process takes a substantial length of time to complete and is subject to many different variables. However, even if an association is unable to recoup all past due amounts owed to it, the foreclosure remedy can be a valuable tool to obtain a paying member vs. a habitual delinquent/non-paying member of the Association.