With Nevada still reeling from the housing crisis and many Community Associations battling financial hardship, more and more Boards of Directors are faced with the decision of whether to foreclose on the properties of delinquent homeowners. While foreclosure is the final step in the collections process, Red Rock Financial Services urges Community Associations to evaluate the Pros and Cons of foreclosure before taking action as there are two possible outcomes and not all are favorable.
The first possible outcome of a Foreclosure Sale is the property reverting to the Association. If no 3rd party bidders are present at the trustee sale, the Association takes possession of the property through the recordation of a Trustee’s Deed Upon Sale. When this occurs, the Association assumes control of the property and the Association and is responsible for evicting the resident(s). The Association also assumes responsibility for all collection fees and costs, loss of delinquent assessments, potential balances owed on any prior mortgage(s), all taxes, tax liens and the Real Property Transfer Tax.
After taking ownership of the residence and evicting the delinquent homeowner(s) (if they are still living in the residence), the Association may convert the residence into a rental property, if their governing documents allow. The Association can then use this rental income to offset the costs of foreclosure, taxes, insurance and any other expenses incurred during the foreclosure process. The Association may also be able to apply the rental income to the maintenance and upkeep of the property. The Association may also sell the property, if no previous mortgages exist. The downside of the property reverting to the Association, however, is that it exposes the Association to financial risk as the Association becomes responsible for all costs. These costs include collection costs and fees, Transfer Tax and Resale Transfer Tax, eviction costs and fees, insurance, property maintenance and the like and any legal feed incurred during the foreclosure process. The Association’s foreclosure action also wipes out all delinquent assessments, late fees and interest owed to the Association.
The second possible outcome of an Association Foreclosure Sale is that the property is sold to a 3rd party bidder and the new owner takes possession of the property, receiving a Trustee’s Deed Upon Sale. When this occurs, the Association receives all of the outstanding assessments, late fees and interest due and the new owner assumes responsibility for all of the collection fees, costs and current assessments.
While there are both pros and cons when a property reverts to the Association, the Association wins all around when the property is sold to a 3rd party bidder. With this outcome, the Association receives 100% of past due assessments, late fees and interests. The 3rd party bidder also pays any collection fees and costs, taxes and eviction costs and, as new owner, assumes responsibility for all current assessments.
Initiating an Association Foreclosure Sale is an important decision and Boards of Directors should weigh the outcomes of the possible scenarios before entering the foreclosure process. Red Rock Financial Services is available to provide guidance and assistance to Boards of Directors facing this daunting decision. Contact us today at 702.932.6887 or visit www.rrfs.com.