Post Sheriff’s Sale: Association as Property Owner

Prior to a sheriff’s sale on a judicially foreclosed property, the Association places a bid on the property, generally in the same amount as the balance due from the previous Owner (including default assessments, and costs and fees associated with the action). The Association likely hopes that it will be outbid at the foreclosure sale, in which case the winning bidder is required to pay the balance due to the Association.

However, it is not uncommon for the Association to win the bid, especially where the property has zero or negative equity. So, as the new property Owner, there are several tasks that should quickly be performed in order to protect the Association and the property:

1) The Association should immediately insure the property. Coverage should include both general liability and casualty.

2) The Association should change the locks to the property.

3) The Association should inspect the property for leaks or other items that may cause damage. Any issues which may cause damage to the property, other units, or the common elements should be repaired immediately.

4) The Association should request an estimate to determine what other repairs or maintenance of the property should be performed to make the unit habitable or saleable.

5) The Association should determine an approach to make the property income-generating.

For this last item, the Association should consult with their attorney to discuss what approach may be appropriate.

Where there is equity in the property, the Association may be able to recover its balance due through a traditional sale of the property.

If there is little or no equity, the Association may be able to rent the property. The Association’s attorney can help the Association determine if the Association’s declaration presents any obstacles to leasing the property.

If there is a tenant already in the unit, the Association should make contact as quickly as possible. That tenant should be informed of the new owner and that future rental payments are to be made directly to the Association. The Association must decide if it will continue under the previous Owner’s lease contract, negotiate a new lease with the tenant, or take steps to remove the tenant. A property manager will be able to help with many of these issues.

The largest obstacle to the Association recovering its entire balance due is likely the outstanding Deed of Trust (the mortgage). The previous Owner likely defaulted on his loan (as he defaulted on his assessments), and the bank may foreclose at any time. As a practical matter, foreclosure may happen in a matter of weeks, months or years. If foreclosure seems likely, the Association must carefully weigh how much money it places into maintenance or repairs of the unit to prepare it for rental or sale versus the risk of sale.

In the instance where the Association judges that no income can be gained from the property (due to a combination of negative equity and the condition of the property), it is likely that the bank holding the Deed of Trust will foreclose. Hopefully, the bank’s foreclosure results in a new, assessment-paying owner. Ideally, however, the Association has recovered most or all of its balance due prior to the time of any bank foreclosure.

In summary, after receiving ownership of the property, the Association should act quickly to formulate a plan to attempt to recover their balance due.