When a lender fails to move forward with foreclosure on a delinquint unit, the association can be left with both a vacant property and no means to collect its assessements. However, the law may give condominiums and homeowner associations a way to fight back against lenders that have liens on delinquent properties in their communities, but refuse to take title and assume responsibility for unit owner oblgations to the association. A “quiet title” action may be the answer.
Condominium and homeowner associations continue to be impacted by the recession and depressed real estate values. Unit owners who are unable to keep up with their mortgage payments often become delinquent in their fee assessment payments as well. This, of course, damages the association, whose ability to operate is entirely dependent upon timely payment of assessments by all unit owners. And even when an association pursues all of it available statutory remedies, including placing a lien on the unit, the properties are usually subject to a mortgages, home equity lines, and other secured loans from banks and lending institutions that have first priority. This prevents the association from foreclosing and taking ownership for purposes of selling the unit. But a further complication arises when the lender holding the superior lien fails to move forward with it own foreclosure on such properties.
When lenders assume ownership of properties through foreclosure, they become responsible to the association for assessements applicable to the unit from the time that they take title. Essentially, the lender becomes the unit owner. However, not all lenders who are entitled to foreclose on a property proceed with foreclosure. In some cases, the lenders are waiting for the market to improve, or simply are carrying too many troubled properties to take on more. Whatever the reason, they can avoid the responsibilites of ownership by simply not going forward with foreclosure. When this happens, and the delinquent unit owner has vacated the unit, the association is left to deal with a vacant property wand no one responsible for paying its share of association expenses.
According to the Community Associations Institute, a large percentage of lender-owned homes are not making timely assessment payments. Add to those the vacant units where the lender has failed to take ownership, and the number of non-paying units becomes staggering. In some jurisdictions, the problem is so acute that the legal community has been called upon to find creative ways to address it. One method is an action to “quiet title.” Such actions can generally be brought by any person or entity with constructive possession of a property under color of title or claim against another person or entity claiming title through, for example a lien. A condominium or homeowners association with a lien on a unit for unpaid assessment may qualify as holding a sufficient claim of possession so as to be entitled to bring such an action. The suit is intended to remove any cloud on the title and resolve disputes as to ownership interest.
Arguably, such a suit could require the lender to either move forward with foreclosure or release its claim and allow the association to take title. In some places, this process has come to be called “the mortgage terminator,” and particular attention has been given to a case involving a Miami condominium unit in which Citibank held the mortgage. The condominium association, which had a lien on the unit for unpaid assessments, sued when Citibank failed to move forward with foreclosure. The parties reached a settlement that reportedly allowed the association to take title.
A Maryland statute, Md. Real Prop. Code Ann. Sec. 14-108, specifically provides for “quiet title” actions. The right lawyer may be able to utilize this procedure to either force lenders to foreclose, take title, and begin paying assessments, or to give up their claim to the property and allow the association to foreclose on its lien.