Collecting Homeowner Assessments When The Bank Will Not Foreclose

Homeowner assessments are charges levied by the homeowner association to pay for common expenses of the community. Some assessments are nominal. In other communities, the assessments can be substantial because the homeowner association pays for utilities, playgrounds, snow removal and other expenses typically paid for by the homeowner. In these communities, when an owner can no longer pay the assessments, all the remaining owners must pay more to cover the common expenses.

In better times, the cost to the other homeowners was minimal. If the owner was not paying assessments, they were probably not paying the mortgage, either. The bank would foreclose through the public trustee, the old owner would be evicted and a new owner would start paying assessments.

There is a disturbing trend, these days. Banks are not always foreclosing when a homeowner fails to pay the mortgage. Homeowners, hopelessly underwater on the value of their home and jobless, are not paying the bank or the homeowner association. The owner has decided to stay in the home, pay nothing for as long as they can and deal with the consequences, later.

The homeowner association has few options when the bank will not foreclose and the homeowner will not pay assessments. The homeowner association can (1) do nothing and let other owners absorb the costs, (2) file suit and obtain a money judgment or (3) foreclose on its assessment lien through the courts. Typically, the homeowner association will first file suit and get a money judgment. However, the homeowner has no money, has no job and will most likely file bankruptcy at some later date. This makes the money judgment not a very effective way to solve the problem. The only real solution is to foreclose on the assessment lien and sell the home on the courthouse steps. This is called a judicial foreclosure.

When the bank forecloses on a Colorado home loan, it is through the public trustee (a public trustee foreclosure). In that scenario, the homeowner association does not have to spend much money to get the old owner out and a new owner in. When the homeowner association forecloses on its assessment lien, it is a judicial foreclosure. In a judicial foreclosure, the homeowner association incurs substantial costs that, hopefully, get reimbursed when the home is sold.

Homeowner associations have traditionally avoided judicial foreclosure of the assessment lien. However, that is changing in communities where a substantial portion of the operating expenses are paid through homeowner assessments. These communities can no longer afford to pay the bills for those who do not.

The judicial foreclosure option to collect homeowner assessments has its drawbacks. It takes longer than a public trustee foreclosure, it is much more expensive and does not always solve the problem. Faced with mounting expenses and paying owners who can no longer afford to pay the common expenses for those who decide not to pay, the judicial foreclosure option is becoming the option of choice when the bank will not foreclose.