Foreclosure/Writ of Execution
This month we are highlighting the process of determining whether a delinquent homeowner's account should be considered for a statutory foreclosure or writ of execution (sometime commonly referred to as a Sherriff's Sale). Either a statutory foreclosure or writ of execution divests the current non-paying homeowner from title to the property and, as such, are two of the most aggressive tools available to a Community. These remedies should be considered for the difficult to collect and high balance delinquent homeowner accounts. The result with either process is a change of ownership in the title of the property. The non-paying owner will no longer own the property after the time of the sale and the accrual of their assessments will cease. Of course, a payment plan or payment in full may be received prior to the sale date which is the best outcome for the Community.
A Community may wish to consider initiating a statutory foreclosure or writ of execution on an existing judgment if: (a) a delinquent homeowner's account is substantial, generally in excess of $7,500.00, and (b) traditional methods of attempting to collect on a judgment have proven unsuccessful (i.e., bank or wage garnishment, Oral Exams, and/or levy of personal property) have not yielded the desired results. Maryland and D.C. have different procedures; we will primarily highlight Maryland below, with a few DC distinctions, and we will be writing about the full District of Columbia process in an upcoming edition of Collections Corner.
The first step in considering whether to proceed with one of these remedies is for us to review the particular account and provide the Board with an attorney opinion letter. This opinion letter will identify other lienholders, if any, that may have an interest secured against the property, and explain how such interest may affect the statutory liens or judgments held by the Community. We also review public records to estimate the value of the property. This information is used to analyze the likelihood of the property being purchased at the foreclosure sale by a third party or, in the alternative, if the Community may have to "purchase" the property in the event there are no competitive bids at the public auction. This initial letter is also done in DC, but the factors are balanced differently, and the super priority lien, which our office has discussed on several occasions, is a significant consideration as well.
Whether the property is sold to a third-party or purchased by the Community, the immediate benefit is that the non-paying owner no longer owns the property and the accrual of their assessments will stop. If the property is purchased at the foreclosure sale by a third-party, it is very likely that the Community will recoup some or all of the monies owed at the time of the sale and a new owner will commence paying assessments. On the other hand, if the Community is the purchaser at the foreclosure sale, the Community may choose to rent the property, or if there are no superior liens, sell the property to recoup the cost/expense of the sale and to pay down the outstanding debt owed to the Community.
However, it is important for a Community to also consider the cost/benefit of proceeding with a statutory foreclosure or writ of execution before deciding to proceed with either of these remedies. Each process could involve significant costs to a Community. To complete our preliminary review and recommendation of whether an account is appropriate for a foreclosure sale or writ of execution, we must order and review the current title report for the property. The cost to order a title report is currently $125.00, plus additional costs at the attorney's current hourly billing rate to review the title report. In addition, we currently charge a flat fee of $250.00 for preparation of the attorney opinion letter. If the Community determines to proceed with either the foreclosure sale or writ of execution, there are additional costs to cover filing fees, advertisement requirements in a local newspaper pre and post-sale, legal fees for drafting the required notices of the potential sale, and pleadings required to be filed pursuant to the Maryland rules. We estimate the costs and legal fees associated with either process will be between $4,000.00 and $6,000.00. In the event that a foreclosure or writ of execution is stopped because the delinquent owner makes full payment or because the owner files bankruptcy, or the like, only those charges thus far accumulated will be due. The costs and steps for DC are slightly different, and often less expensive than the amounts cited for Maryland. In the District of Columbia, both judicial and non-judicial foreclosures are authorized by statute, and the public records can be obtained directly by the attorney. In DC, the time period may be much faster, and the out-of-pocket cost to the Association is often greatly reduced.
We recognize that this topic is complicated; so, should you have any questions or if you would like a list of recommended properties to identify as good candidates for the attorney opinion letter, please contact the managing attorney of our collections department, Laura Curry, at [email protected] or 410-740-8100 ext. 102. We have previously written a more comprehensive newsletter explaining the differences between statutory foreclosure and writ of execution and we would be happy to forward that upon request.