BackerReport |
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BackerReport is a periodical addressing topics of interest to community associations in South Florida and is provided as a service to the clients and friends of Backer Law Firm, P.A. All articles are written by attorneys of Backer Law Firm, P.A. (unless otherwise indicated) and are protected by copyright. It is important to note that court decisions discussed in this newsletter are sometimes subject to change as the parties pursue further appeals or other remedies. The articles that discuss court cases in this newsletter are based upon the courts' decisions that are released when the newsletter was written.
Various newspapers in South Florida have
published articles about what is being touted
as a new strategy to compel foreclosing
mortgagees to take title to homes where the
mortgagee's foreclosure actions are either
stalled or bound up in litigation. The
procedure has become known as "reverse
foreclosure."
Unfortunately, some South Florida law firms
have seized upon the frustrations of the
Boards of nearly all South Florida community
associations whose budgets have been battered
by defaulting parcel owners and long delayed
first mortgage foreclosures. In an effort to
generate new business, some law firms are
touting the reverse foreclosure process as a
panacea to cure the ills of struggling
community associations. Since the procedure
only has the chance of success in a
limited number of cases, the marketing
techniques of some law firms are
questionable. Desperate Boards of Directors
have been heard to be considering scrapping
their long-standing relationships with their
existing law firms in favor of those firms
offering what, in some cases, amount to a
snake oil salve for their financial problems.
As much as everyone wishes that there was a
silver bullet procedure to get communities'
financial houses in order, there simply is no
such procedure. Historically tried and true
aggressive collection policies remain the
primary and most effective means of assuring
that a community remains solvent.
Though the reverse foreclosure process is
not the silver bullet some law firms may
appear to be promising, it is a procedure
worth understanding so it can be used where
appropriate. The process has not been
universally accepted by the courts, but there
have been enough courts willing to use the
procedure that it certainly warrants
consideration in some cases. In a nutshell,
the process requires that there be a mortgage
foreclosure lawsuit pending on a parcel that
is bound up in lengthy litigation or is being
intentionally delayed by the lender to avoid
the likely inevitable day when it will
acquire title at a foreclosure sale. It also
requires that the parcel owner be delinquent
in the payment of assessments to the
association. The association must file a
foreclosure action against the owner and
proceed to a foreclosure judgment as quickly
as possible. If the parcel owner does not pay
the association the amounts owed after a
judgment of foreclosure is entered, the
property will be scheduled for a clerk's
sale. If the association is the high bidder
at the sale and acquires title to the parcel,
the parcel owners may be ordered to vacate
the property. Once that occurs, any defense
the owner may have had to the mortgage
holder's foreclosure action arguably becomes
moot since the owner no longer owns the
parcel. The association then must seek to
have the court order that the mortgagee
accept a deed in lieu of foreclosure from the
association. If successful, the procedure
will obligate the mortgagee to pay whatever
amount the law and the association's
governing documents provide it must for past
due assessments and the mortgagee becomes
responsible for paying assessment going
forward from the date it acquires title.
There are a number of potential roadblocks
that could prevent the process from working.
Among them is the possibility that there is a
lien which is superior to the association's
lien, but which is inferior to the
mortgagee's lien. The court would not likely
not order the mortgagee to take title to a
parcel that is subject to a lien which would
have been extinguished had it concluded its
foreclosure action. Another obstacle may
arise if the parcel owner raises defenses,
whether valid or frivolous, in the context of
the association's lien foreclosure action
that will delay the association's effort to
get the property to sale; the procedure works
best in those cases where the parcel owner
has abandoned the parcel and raises not
defenses to the association's foreclosure effort.
As of today, I have not seen any appellate
decisions which either endorse or criticize
the procedure. As with any creative remedy,
there is risk; if a mortgagee does not favor
accepting title and is forced to do so by a
court, a costly appeal could follow. If there
is a parcel owner fighting the process, the
effort to foreclose the lien could become a
costly trial court effort for the
association. Since the association's lien is
ultimately junior in priority to the
mortgagee's lien, the court costs and
attorney fees incurred of the association's
foreclosure action could become uncollectable.
If your Board is considering using this
process in some of the pending mortgage
foreclosure actions in your community, your
Board should thoroughly discuss the risks and
potential benefits with your legal counsel.
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