Do your associations have the ability to foreclose, and even if they do, should they?
We recognize that many of our clients are currently facing or will face this question soon. It is ultimately the decision of the board whether to proceed on these actions when legally permitted. Those decisions often require a case-by-case analysis rather than a blanket policy, and it is important to have the insights required to make the best choice.
Below we will provide both easy access to the current applicable statutory restrictions for your state, as well as additional important factors to consider.
While the decision if and when to initiate legal action is nuanced, we believe strongly that up-front proactive communication prior to this decision point is unquestionably important.
There are several ways communities, through their collection partners, can begin their collections through compassionate outreach opportunities, including not simply just written communication, but also phone calls, emails, or other methods. Communicating with a past due owner in way that is most convenient to them not only resolves accounts more quickly, it provides the homeowner a better experience and promotes the type of goodwill and partnership that helps your communities thrive.
If you are able to reach the past due owner prior to beginning legal action you can evaluate any hardships they may be facing, as well as their ability and willingness to repay their balance through a payment plan.
If an account remains past due after their proactive measures have been completed, the board must then decide whether to continue reaching out, or to move the account to legal action. In the past several months local, state, and federal statutes have impeded an association’s ability to complete a foreclosure action.
National foreclosure sentiment
The national sentiment against foreclosure action has been, and remains, significant.
United States Federal Government
- The government halted all foreclosure and eviction action on federally backed loans through the cares act and again through executive order. An updated order extended this through the end of the year in most circumstances.
Department of Housing and Urban Development
- The Department of Housing and Urban Development will extend a ban on evictions and foreclosures for homes backed by the Federal Housing Administration (FHA) through the end of the year.
CAI (Community Association Institute)
- The CAI recommended halting foreclosure to match the Federal Government’s Policy
- Only recommends liens in cases where there is exposure to the Association in not placing a lien
MINNESOTA FORECLOSURE Rules, regulations, and guidance
Each state also has their own set of rules, regulations, and guidance that can vary throughout the state even on a county and local level.
Examples to consider in your market are:
The emergency order issued in March by Governor Tim Walz that prohibits mortgage holders from filing eviction actions to recover possession of a property after termination of a redemption period.
An updated order, effective in August, further clarified these restrictions and the state’s strong position against evictions and foreclosure, including prohibiting financial institutions from foreclosing.
”Financial institutions holding home mortgages are requested to implement an immediate moratorium on all pending and future foreclosures when the foreclosure arises out of a substantial decrease in income or substantial out of pocket medical expenses caused by the COVID-19 pandemic, or any local, state, or federal governmental response to COVID-19. Financial institutions are also strongly urged not to impose late fees or other penalties for late mortgage payments related to the COVID-19 pandemic.”
Additionally, a significant question for many is the ability for debtors to appear in court to defend themselves. The current recommendation, due to the pandemic, is to avoid public spaces and limit the number of people in one place. Those facing foreclosure might feel that they are facing a decision whether to compromise their health and safety to challenge the association foreclosure action.
As your partner and trusted advisor, we will pursue legal action at the direction of the board. It is our job to ensure we let our clients know about risks we are aware of, so that they can make an educated decision for their communities.