Foreclosures in the District of Columbia - What Can Condominium Associations Do?
The good news for District of Columbia residents is that the real estate market is strong, prices of condominiums, in particular, are rebounding, and the foreclosure rate is low. All these things are true, but they do not tell the real story about foreclosures and the underlying effects on community associations in the District of Columbia.
In response to the economic downturn and the plunge in the housing market, in 2010, the District of Columbia Council enacted the “Saving Homes From Foreclosure Amendment Act of 2010,” which went into effect on March 12, 2011, with further amendments effective on November 26, 2011. The new provisions establish a mortgage mediation process that lenders have to comply with in order to carry out a foreclosure sale of real property in the District of Columbia. The initial impact of the legislation was a complete moratorium on residential real estate foreclosures. The practical longer-term effect of the new legislation has been to dramatically slow the rate of mortgage foreclosures in the District of Columbia. As a result, some homeowners remain in properties years after they ceased making mortgage payments.
Some community associations, particularly those developed in the years (2005-2008) immediately before the economic downturn, have been dramatically affected by the combination of deflated values and the foreclosure slowdown. Members of their communities who are delinquent in the payment of their mortgages are also not paying their assessments to the associations. In anticipation of foreclosure, some owners have abandoned their properties, perhaps thinking this would protect them from having to pay assessments. These unfortunate associations are left with growing delinquencies and limited mechanisms by which they can effectively collect the past due assessments.
Each association is unique and has to tackle its delinquencies in a manner consistent with its circumstances. Some associations are filing lawsuits and seeking judgment for the unpaid assessments, because they are able to locate the delinquent owners who have to be served with the lawsuit papers. Other associations have no remedy except to exercise their right to foreclose on their liens for unpaid assessments.
Condominiums have the statutory authority under the D.C. Condominium Act to sell units at foreclosure to satisfy their liens for unpaid assessments. That authority has not been affected by the "Saving Homes" legislation requiring lenders to follow new mediation procedures. Homeowners' associations may also have the contractual authority to foreclose to the extent it is set forth in their recorded declarations. The decision to foreclose on a lien for unpaid assessments must be made by the Board after careful consideration of the best legal and financial options available to the association, considering each on a case-by-case basis. Even where an association has well-defined rights, exercising them through the courts can be slow and expensive. Our attorneys can provide a detailed analysis to provide each Board with the facts on which to make an informed decision on these alternatives.
The good news is that improving property values and new mortgage assistance programs have allowed some homeowners to renegotiate the terms of their mortgages and begin repayment of their assessment delinquencies. Further good news comes from the fact that investors are eager to enter the D.C. real estate market. We will all be keeping a close watch on mortgage foreclosures over the coming months to see what new developments may be affecting our community association clients.