Tuesday, September 24, 2013

Bank-Held Properties

One of our managers will be addressing a national gathering of representatives from FDIC, FNMA, FHLMC, HUD and various rating agencies.  The purpose of the symposium is to help these agencies understand the impact of their policies and processes on the homeowner association industry.  Our speaker will be discussing delays in obtaining homeowner assessments from bank-held homes.  Below are some key points from this presentation.

Too often, a home will be abandoned but not foreclosed for long periods of time.  Three, six or even twelve years may pass before the bank moves to foreclose, leaving the homeowner association without the needed funding for the most basic services.

While an Association may foreclose on unpaid assessments, the entire process takes six or more months.  For banks, Georgia has one of the fastest non-judicial foreclosures at 37 days:  An Association will incur five to ten thousand in legal fees, only for the bank to immediately foreclose afterward.  The Association’s fees in this instance are often unrecoverable.

To complicate matters, frequently fraudulent deeding of property occurs.  Combined with spurious bankruptcy filings, homeowners can string out the foreclosure process by five years.
Often, an Association has no idea of a fraudulent deed until discovered during a bank foreclosure, when the Association has already incurred time and expense pursuing a debtor.  To avoid this, the homeowner association should be included in bank foreclosure suits (for notice purposes only), so the association is aware of the situation well in advance. 

In some instances the lender takes possession of a home without actually foreclosing.  It sends in a vendor to change locks, pay property taxes, winterize plumbing, etc.  Without an actual foreclosure, the bank is not liable for assessments except in a handful of states
operating under “super lien” laws.  Unless the Association is constantly pulling tax records, it may not discover this situation for years.  To combat this, one item being contemplated is for the Association to file an abandonment claim against the lender for failure to maintain (homeowner assessments, landscaping, etc.).  This potentially leads to the Association gaining title to the property, with legal costs a recoverable expense against the lender.
Once a home has been foreclosed, it is difficult for the Association to track down the lender representative tasked with making assessment payments.  Lenders often outsource property maintenance to third party companies, making things more difficult for the Association.  It is not uncommon for an Association to wait until the bank-owned property sells to a new homeowner, before collecting unpaid assessments from the lender.
If neither the bank nor its servicing agent noted that the home is part of a homeowner association, assessments may not be collected at closing, leaving both the bank and the purchaser jointly liable for the delinquency.  This is not a good introduction for the homeowner to the community.

Some servicers hired by lenders have become proactive in tracking down homeowner association representatives, setting up payment plans.  However, the banking system is so fragmented that two different servicing agents are assigned the same home, with both paying past due assessments.  While this might sound ideal for the Association, it creates problems when the bank attempts to collect overages a year after the home has sold.  The new homeowner may believe the additional funds applied to his account are rightfully his, creating needless conflict.
The banking industry requires a process that, prior to foreclosure, will accurately identify homeowner association contacts.  Similar needs for handling property taxes and hazard insurance are already in place, but the challenges of connecting with 350,000 homeowner associations, many of them self-managed, are formidable.


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