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Units In Collections With No Mortgage

Posted on Author By Marlena Diaz-Cobo, Esquire

What happens when a unit is in collections and then upon a title search, we determine there is no mortgage on the property?

This is a common situation when the property was bought a long time ago, and the debtor recently fell on hard times or the debtor is a relative that inherited the unit from the deceased owner. Although the mortgage is paid, the debtor cannot pay their monthly maintenance fees.

The Association will most likely proceed with its collection efforts whether it be through a foreclosure against the debtor’s property or through a money judgment action against the debtor personally. A foreclosure’s end goal is to get to a sheriff sale, and likewise if there are no assets to collect on an outstanding money judgment, the end goal would also be a sheriff sale.

So, we are at the sheriff sale stage now, and there is no mortgage on the property! Before we actually go to the sheriff sale, we would advise the Association of all that needs to be taken into consideration to make an informed decision.

First, we would obtain a full title search to determine all docketed judgments, liens, and any tax sale certificates. If there are various judgments and liens on the property, and the Association is not interested in obtaining clear title, then the Association could bid at the sheriff sale the current amount owed. If a third-party purchaser successfully bids on the property, then the Association will be made completely whole. However, if no one bids, and the unit reverts to the Association, the Association can rent the unit until the holder of that lien or docketed judgment forecloses on the property. This can take a very long time, especially if the lien holder has not instituted any foreclosure action yet.

If there are docketed judgments and liens on the property, and the Association is interested in obtaining clear title, any judgment that is docketed, and any outstanding lien would have to be satisfied in order for the Association to gain clear title. If the unit is worth substantially more than the amount of the liens, or docketed judgments, satisfying those liens/judgments might be a good option for the Association since the Association can possibly become the outright owner, and will be able to sell the unit at the fair market value, reaping a substantial sum!

A cost/benefit analysis would have to be undertaken to determine whether it is in the Association’s best interest to gain clear title. Whether the Association is interested in obtaining clear title or not, the Association can potentially reap a lot of money by taking a unit without a mortgage to sheriff sale. The Association can either be made whole by being paid by a third-party purchaser or the Association can rent the unit pending the lien holder’s foreclosure action. If the Association becomes the outright owner, the Association can sell the unit at fair market value and reap the entire amount the unit is worth.

Associations’ Right To Sell Units

Posted on Author By Francis J. McGovern, Jr., Esquire

Along with associations’ ability to sell units by foreclosing on liens, they can also sell units to satisfy money judgments – if they can prove the owner has no other personal assets.  A New Jersey court rule and statute both permit a judgment creditor to levy upon a debtor’s real property if the creditor cannot find assets to satisfy the judgment elsewhere.  In other words, if the association sends an information subpoena to the debtor, performs asset searches and sends the Sheriff to the debtor’s property to inventory personal property, and there are no assets found that can satisfy the judgment, the court rules and statute allow the association to levy the debtor’s real property and sell it at Sheriff’s sale. At Sheriff’s sale, either a third party will purchase the property or ownership will revert back to the association and the association can rent the property.

This process was recently confirmed by the Appellate Division.  On behalf of an association, this firm filed a motion to permit sale since no personal assets could be found.  The motion judge denied the motion because there was an outstanding mortgage on the property and the judge felt that it would not be fair for the association to sell or rent the property and collect its judgment while the mortgagee was foreclosing.  This firm appealed the motion judge’s decision and argued the matter before the Appellate Division.  The Appellate Division reversed the motion judge’s decision in the unpublished opinion, Birch Glen Condominium Association, Inc. v. Boahene.  We successfully argued that the outstanding mortgage on the property is irrelevant to the association’s motion.  The Appellate Division agreed with this firm’s position that the motion judge erred by failing to base his decision on whether the association had taken adequate steps to try to satisfy the judgment out of personal property.  The case was remanded back to the motion judge with instructions that the judge determine whether the association made reasonable efforts to located the defendants’ assets to satisfy its judgment.

Easing The Burden Of Vacant Units

Posted on Author By The Association Lawyers

In these tough economic times, it seems no association is immune to the burden of vacant units. While failure to pay assessments is the most obvious problem, vacant units can introduce a host of other problems from squatters to burst pipes. While there is no quick fix or magic formula to correct the scourge of vacant units, there are steps that every association can take to ease and even eliminate the financial and maintenance burden vacant units can create.

If the association is willing to rent units, often the best option is to contact the owner of a vacant unit to see if they would consider signing a quitclaim deed or a rental agreement. A quitclaim deed transfers ownership of the unit to the association, subject to any mortgage or other liens on the property. A quitclaim deed offers two enormous benefits. First, the association can rent the unit and begin recouping the arrears that have been accumulating. Second, the association can monitor and control the unit and ensure that it does not become a health and safety hazard in the community. A rental agreement provides the association with the authority to rent the unit on behalf of the landlord and collect the rents. It offers many of the same benefits as a quitclaim deed, but without the permanency of actually transferring ownership. In either case, the association should ensure that the unit is in rentable condition – or can be made rentable for a reasonable cost – prior to entering into any agreements.

In New Jersey, a mortgagee who takes possession of a unit is responsible for pay ongoing assessments throughout its possession. If a mortgagee has taken possession of a unit, the association can pursue the mortgagee directly for unpaid assessments. It is a fact sensitive inquiry as to when a mortgagee has taken possession. Whenever it appears that a mortgagee has become involved with a unit, it is best to contact the association’s attorney to determine what options the association may have.

Beyond collections, vacant units also can create nuisances and even health and safety hazards. N.J.S.A. 46:10B-51 requires foreclosing mortgagees to maintain vacant and abandoned properties. While the mortgagee does not have to keep a property in pristine condition, it is responsible to ensure that the property does not become a nuisance or violate any state or local code. If a vacant unit is in disrepair, the association can demand that the mortgagee make the necessary repairs and, if it fails to do so, notify code enforcement who should then force the mortgagee to make necessary repairs and perform necessary maintenance.

Lastly, with the temperature continuing to drop, associations may be forced to take some maintenance and repairs into their own hands. If a vacant property has not been winterized by the mortgagee, every association with attached units should hire a plumber to winterize any vacant units. Pursuant to the Condominium Act, N.J.S.A. 46:8B-15(b), an association has the right to enter a unit during reasonable houses “to perform emergency repairs necessary to prevent damage to common elements or to any other unit or units.” Therefore, the association may step in to winterize properties in order to prevent the extensive damage that can be caused by a burst pipe. The association can also bill back the costs of the repairs to the unit owner. While this may seem like an added cost to the association, the cost of winterization is minimal compared to the costs of repairing the area surrounding a burst pipe, not to mention the inconvenience to the surrounding units. This same logic can be applied to other unit owner responsibilities, like a broken window or door. Keeping vacant units secure is the best way to protect the entire association and to prevent much greater costs down the road.

While vacant units are never welcome, they can be controlled and even become income generating assets if the association is proactive.

Show Me The Money – Collecting From Debtors

Posted on Author By Francis J. McGovern, Jr., Esquire

Chances are your Association doesn’t have spare money lying around.  Chances are your Association has five or more “regular debtors” – the ones who are on the arrearage list year-in and year-out.  Chances are that, since the recent recession, 10% of your budget and/or 10% of your homes are in arrears. Chances also are that some debtors have abandoned their units and the Board has had to deal with frozen pipes, mold, vandalism or all three.

Our job is to get non-payers out, get vacant units occupied and get cash flowing.  We do this in one or more of the following ways.  Unless you want to increase the bad debt expense line item in your budget year after year, you should be pursuing one or more of these methods:

  • Payment Plans/Settlement Agreements.
  • Amnesty Programs.
  • Membership Privilege Suspension (Pools and Parking Too!)
  • Money Judgment Lawsuits.
  • Bank Account Levies.
  • Wage Executions.
  • Rent Levies.
  • Lien Filing.
  • Foreclosure Lawsuits.
  • Receivers in Aid of Execution.
  • Rent Receivership.
  • Rent Sharing Agreements.
  • Mortgagee In Possession Lawsuits.
  • Quit Claim Deeds.
  • Sheriff’s Sales Based on Foreclosure or Money Judgment Suits.

We give presentations, throughout New Jersey, on various collection techniques, including those listed above.  Please contact us if you would like to schedule a free collection presentation for your New Jersey Home Owners Association, Condominium Association or Co-Op.

Damon Kress, Esq. – Presented to the National Academy of Forensic Engineers

Posted on Author By Damon M. Kress, Esquire

On July 18, 2015 Damon Kress, Esquire presented to the National Academy of Forensic Engineers at their Summer 2015 Technical Program in Seattle, Washington. Damon represents to Associations throughout New Jersey that have been the victims of construction, design, materials, financial and other defects.

 

For more information on NAFE, please visit their website.