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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.

Legislation to Benefit Age Restricted Communities

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

There is a pending bill that may provide much needed assistance for age restricted communities that are suffering with abandoned units in their communities. The bill requires mortgage companies to maintain vacant, age-restricted units during its foreclosure process and also requires the mortgage companies to pay the ongoing monthly assessments to the Association throughout the foreclosure process.

The bill was introduced into the Assembly on June 6, 2013 as A4169 and is sponsored by Assemblyman Gregory P. McGuckin and Assemblyman David W. Wolfe. An identical bill was introduced into the Senate on May 30, 2013 and is sponsored by Senator James W. Holzapfel.

Pursuant to the bill, all mortgage companies that are foreclosing on any residential unit will be required to notify the municipality in which the unit is located within ten days of filing a mortgage foreclosure complaint (or within thirty days if the mortgage company already instituted a foreclosure action). The notice must provide the municipality with the contact information for the mortgage company’’ s representative that is responsible for receiving complaints of property maintenance and code violations.

If the unit owner abandons the unit that is being foreclosed upon and the property is found to be a nuisance or in violation of any state or local code, then the local public officer may notify the mortgage company and the mortgage company shall then be liable to abate the nuisance or correct the violation. If the mortgage company does not correct the nuisance or violation, then the municipality may do so and charge back the mortgage company for the costs incurred.

If the abandoned unit is located within an age-restricted community, then the mortgage company will be liable to pay the ongoing monthly assessments to the Association as well as maintain the property while the unit is in foreclosure. The mortgage company will be held jointly and severally liable along with the owner to pay the ongoing monthly assessments to the Association. Therefore, in the event that the monthly assessments are not paid, the Association will be able to pursue the mortgage company as well as the owner in a collection action. As a result, this bill will greatly assist age restricted communities with collecting assessments on abandoned units. However, this bill has only recently been introduced and we will continue to monitor its progress.