BackerReport )
A newsletter addressing issues of concern to South Florida Community Associations April 2010
Articles In This Issue
  • Step Right Up for the Cure All to Your Community's Financial Worries! (CAUTION: READ THE FINE PRINT)
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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.

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    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.


    Step Right Up for the Cure All to Your Community's Financial Worries! (CAUTION: READ THE FINE PRINT)

    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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