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Is it Worth Suing an Owner for Assessements if his Unit is in Foreclosure?

By: Daniel Wolf | Posted: 10/24/13 | Filed In: Assessments, Associations, Common Interest Community, Condominium, Foreclosure

For a number of reasons, the answer is usually yes!

An owner whose unit is in foreclosure because of an arrearage in mortgage payments is more often than not also delinquent in payment assessments to the association.  Owners facing the inevitable loss of their home in foreclosure frequently decide not to pay assessments because they assume (wrongly, as you will see) that once they lose the house to the bank, their obligation to the Association will simply ‘go away’.   Ironically, associations are often reluctant to bring suit for assessments against an owner in foreclosure for the very same reason:  they assume (also wrongly) that once the foreclosure is completed and the owner is gone, they simply lose out on the assessments.

The erroneous belief that losing a house to foreclosure wipes out the obligation to pay assessments probably comes from a misunderstanding of the difference between an owner’s personal obligation to pay assessments vs. the association’s lien for unpaid assessments.  In short:

An owner’s personal obligation to pay assessments arises from the terms of the association’s Declaration.  Nearly all Declarations state that an owner must pay his proportionate share of the association’s common expenses (i.e. assessments) on regular basis – usually monthly, but sometimes semi-annually or yearly.  The Declaration is really a form of contract between each owner and the association – if the owner breaches the contract by not paying the required assessments, then the association can sue to recover those unpaid assessments.

An association’s lien for unpaid assessments also arises from the terms of the association’s Declaration.  Nearly all Declarations state that the association has an automatic lien on a delinquent owner’s unit to the extent of any unpaid assessments.  The association’s lien is an encumbrance on the owner’s property just like a mortgage – so long as there is a lien for unpaid assessments, the owner can not convey “clean” title (for example:  when an owner sells his unit, he must pay off all past due assessments just the same way as he must pay off his mortgage).  In most cases, the association’s lien is “junior” to a bank’s mortgage lien.

In the majority of cases involving residential property, a foreclosure sale extinguishes – or “wipes out” – junior liens, including an association’s lien for unpaid assessments.   (There are exceptions – protection of an association’s lien in foreclosure is the topic of a separate future** article).

Here is the important thing to know:   wiping out the association’s lien for unpaid assessments does not wipe out the owner’s personal obligation to pay assessments!  They are two completely separate things.  Why is this so important?  Because with that bit of knowledge, you can understand the many important reasons it makes sense for an association to aggressively pursue delinquent assessments even if there is a foreclosure pending: