Homeowners associations and condo associations wage war with deficiency judgments
As a result of the foreclosure crisis, cash starved homeowner and condo associations are resorting to using aggressive collection agencies and lawyers to try to recover delinquent fees.
The collectors employed by the associations have turned to the courts in an attempt to force current and former property owners to pay up. Judges have written orders giving the collectors the right to seize the bank accounts and posessions of delinquent owners.
Taking their cue from the banks, more and more HOA’s are seeking deficiency judgments for unpaid association fees. Many homeowners thought their nightmare had ended when they turned over the deed to their lender, not realizing that their unpaid mortgages and association fees could come back to haunt them years later.
Either as the result of a short sale or an outright foreclosure, when a lender sells a home for less than the mortgage amount owed the difference between the amount owed and the amount the bank sold the property for, including legal fees, is usually recorded with the court as a deficiency. In Florida, the lender then has five years to seek a deficiency judgment in order to collect the amount owed. Once the deficiency judgment is granted by the court, the lender has up to twenty years to collect their money. The end result is that twenty years later when you’re back on your feet again and doing well and have forgotten all about it, the lender seizes your assets.
The time allowed for a lender to file for a deficiency judgment varies from state to state. Some states, known as non-recourse states do not allow deficiency judgments at all, and some require the lender to apply for it at the time of foreclosure, while others require an additional lawsuit. One would be well advised to consult a local attorney to find out how the law applies in their state of residence.
The same is true with unpaid homeowner’s or condo association assessments. The association can ask the court for a deficiency judgment, and more and more of them are exercising their right to do so.
A whole new cadre of lawyers specializing in defending distressed homeowners from judgments has evolved, along with another group who work for the homeowner’s association or lender and specialize in chasing down these former property owners.
Once a deficiency judgment has been obtained it is a relatively simple matter for the association or lender’s attorney to have a judge issue a Writ of Garnishment. With only a few exceptions the judge’s order can be used to seize almost anything of value, including wages or the cash in a checking or savings account. In most states you will be given no notice that a writ has been issued, and the only way you will find out about it is after your money or property has been taken. You will then have a short period which varies from state to state, in which to file your objections with the court.
Most creditors will go after the cash in your accounts because it is easier to get at. They tend to stay away from seizing your possessions simply because it is too expensive to levy on them. However, your lender can show up at your door step unannounced accompanied by the sheriff and a moving van and clean out your home. Each state defines what can, and can’t be seized, so it would be wise to research the laws in your state.
Since Florida law sets limits of 12 months of association payments or 1 percent of the amount of the original mortgage, whichever is less, it’s not likely that the association would resort to something as drastic as a moving van unless you have really managed to annoy them. Banks, however, are generally owed a substantial sum and could resort to such draconian measures.
It’s also worth pointing out that your bank may have sold the deficiency judgment for pennies on the dollar to a scavenger firm that specializes in collecting these debts. Eventually, more and more banks will be selling these judgments to collection firms, and obviously those firms are going to be a lot more aggressive in collecting the money judgments. These firms will go to great lengths to extract payments from debtors, sometimes forcing them into bankruptcy.
The myth that you can simply walk away from your house and mortgage and be done with it is just not true. Years down the line when you least expect it you could find your money and your property taken from you.
If you find yourself facing a deficiency, most attorneys will advise you to try to settle for a lesser amount or work out payment arrangements. Condo associations and homeowner’s associations will probably be amenable to settlement.
If you are contemplating a short sale get an agreement in writing with your lender that they won’t seek a deficiency judgment. Generally speaking, there are tax liabilities involved with a short sale, but the IRS has some new rules under the Obama Mortgage Plan. Talk to your lawyer or accountant before you agree to anything.
Most importantly, talk to a local attorney who specializes in bankruptcy and mortgages before you get in any deeper. There are ways to avoid having a deficiency judgment ruin your future.