Academy/Collections & Delinquencies
Mortgage foreclosure
What happens to the association's unpaid assessments when the owner's lender forecloses, not the other way around.
When a lender forecloses on a delinquent owner's mortgage, that foreclosure is a separate legal action from the association's own lien enforcement. In most states, the association's recovery from the sale is capped at a limited priority period of recent assessments, commonly illustrated at six months; unpaid amounts beyond that period may become uncollectible from that property.
Two foreclosures, two different plaintiffs
A mortgage foreclosure is the lender's lawsuit or sale process against the owner for missing loan payments. It is not the same action as the association enforcing its own assessment lien for unpaid dues. The two claims can run at the same time, against the same unit, without either side controlling the other.
That separation matters for the board's expectations. The association does not get to step into the lender's shoes, and the lender's foreclosure does not automatically hand the association its money. Whether, and how much, the association recovers depends on where its lien ranks against the mortgage. See lien priority for how that ranking is set.
What the association actually recovers
Under model lien-priority law, the association's claim against a mortgage lender's sale proceeds is capped at a slice of recent assessments, not the full delinquent balance. West Virginia's version of this rule caps that slice at six months of assessments; your state's condominium or HOA act may set a different period, or use a different mechanism entirely, so check your own statute.
"the association has a lien on a unit for any assessment levied against that unit or fines imposed against its unit owner from the time the assessment or fine becomes due"
Source: Uniform Common Interest Ownership Act § 3-116, as enacted in West Virginia, Uniform Law Commission / West Virginia Legislature
Fannie Mae's own loan-purchase standards are built around that same limited-priority idea, which is one reason lenders track the length of a state's priority period before closing a loan. Whatever the association does not recover through its priority lien generally becomes an unsecured claim against the former owner personally, not a debt the new owner inherits.
Judicial or nonjudicial, and it is not the board's call alone
Whether a lienholder, mortgage lender or association, needs a court order to sell the property depends on the state's foreclosure statute.
"A nonjudicial foreclosure is when lenders foreclose property without getting a court order first."
Source: Nonjudicial foreclosure, Cornell Legal Information Institute, Wex
Whether your association's own lien can be foreclosed the same way, nonjudicially, or must go through court, is set state by state and sometimes county by county. Confirm with counsel before assuming your process matches your neighboring association's. See judicial vs nonjudicial remedies for the full comparison.
Check yourself
Answer before you read the explanation, recalling it is what makes it stick.
A lender forecloses on a delinquent owner who owes the association two years of unpaid assessments. The board expects the sale proceeds to cover the full two years. What actually happens?
Two years after a mortgage foreclosure, the new owner asks whether they inherited the prior owner's full delinquent balance. The board president says yes, all of it. Is she right?
A state's foreclosure statute lets a lienholder sell the property under a power-of-sale process, with no lawsuit filed first. What kind of foreclosure is this?
Sources
- Uniform Common Interest Ownership Act § 3-116, as enacted at W. Va. Code § 36B-3-116, Uniform Law Commission / West Virginia Legislature
- Selling Guide Announcement SEL-2014-02, Priority of Common Expense Assessments, Fannie Mae
- Nonjudicial foreclosure, Cornell Legal Information Institute, Wex
Collections & Delinquencies
Next, learn how the association's own lien gets enforced when there is no lender foreclosure to rely on: start with liens.
Whether your association's own lien must be foreclosed judicially or nonjudicially, and the exact length of the priority period that outranks a first mortgage, vary by state and by your declaration.