Academy/Collections & Delinquencies
Bank-owned properties
The mortgage lender's foreclosure and the association's own collection effort are two different legal actions, and they do not end the same way.
When a lender forecloses on a delinquent owner's mortgage and the unit becomes bank-owned, the association's collection effort does not end. The former owner's debt survives, but the association's lien priority over that mortgage is capped, often illustrated as a set number of recent months. What the bank owes going forward depends on state law and the lender's own agreements.
Two Foreclosures, Not One
A mortgage foreclosure is the lender's own legal action against the owner for an unpaid loan. It is separate from the association's own lien enforcement action against the same owner for unpaid assessments. They can happen on different timelines, in front of different decision-makers, for different amounts.
When the lender's foreclosure sale closes, title passes to the lender or a third-party buyer, and the property becomes what is commonly called bank-owned or real estate owned (REO). That sale generally wipes out liens that rank junior to the mortgage, which includes most of an association's assessment lien, with one narrow exception covered next.
What the Association Can Still Collect
Statutes following the Uniform Common Interest Ownership Act model give the association's lien a limited slice of priority that survives a first mortgage foreclosure, ahead of the lender's own claim, no matter how far back the delinquency actually goes.
"to the extent of the common expense assessments based on the periodic budget adopted by the association... which would have become due in the absence of acceleration during the six months immediately preceding institution of an action to enforce the lien"
Source: W. Va. Code § 36B-3-116, West Virginia Legislature, Uniform Common Interest Ownership Act
West Virginia's six months is one state's number under the UCIOA model, not a national rule. Check your own state's condominium or HOA act for the actual figure. Fannie Mae's own loan-purchase standards are built around that same limited-priority concept, which is one reason a six-month-style cap shows up so often in practice. Anything beyond the priority period does not disappear, but it becomes an unsecured claim against the former owner personally, who may have little left to collect from after losing the home.
Once the Bank Owns the Unit
From the day the foreclosure sale closes, the lender or its buyer is the unit's owner of record. Whether, and how soon, that new owner starts owing assessments, and how the association should handle any REO or resale agreement the lender has in place, is governed by state law and the lender's own agreements, not a uniform national rule. Confirm the specifics with the association's attorney as soon as a foreclosure is pending on a delinquent account, rather than waiting for the sale to close.
Check yourself
Answer before you read the explanation, recalling it is what makes it stick.
A delinquent owner owed fourteen months of assessments when the lender foreclosed. The state follows the UCIOA six-month model. How much can the association's lien claim ahead of the mortgage?
The lender's foreclosure sale closes and the bank now holds title to the unit. What is true about assessments going forward?
The association keeps sending demand letters to the former owner after the lender has already foreclosed and taken title. What is the problem?
Sources
- Uniform Common Interest Ownership Act § 3-116, as enacted at W. Va. Code § 36B-3-116, Uniform Law Commission model act, enacted by West Virginia Legislature
- Selling Guide Announcement SEL-2014-02, "Priority of Common Expense Assessments", Fannie Mae
Collections & Delinquencies
Want to understand where that six-month figure comes from and how it plays out against a mortgage? Read Lien priority next.
How much of the old debt the association's lien actually reaches, and what a bank-owned unit owes going forward, vary by state statute and by the lender's own agreements.