District of Columbia Foreclosure
This month we will address the foreclosure process for Condominiums located in the District of Columbia. This remedy is generally appropriate for the difficult to collect and high balance delinquent condominium accounts. The result of a foreclosure auction sale is the non-paying owner no longer owns the property and the Condominium either receives some proceeds from that sale to satisfy the debt, or may obtain title itself to the property. After the sale of the property is complete, the accrual of assessments will cease. Of course, prior to the sale of the property at a foreclosure auction, the non-paying owner may seek to enter into a payment plan, a make a partial payment, or may make payment in full, which may prove to be the best possible result for the Condominium.
A Condominium may wish to consider initiating a statutory foreclosure on a unit if: (a) an owner’s account is substantially delinquent, generally in excess of $5,000.00, and (b) traditional methods of attempting to collect against the unit have proven unsuccessful (i.e., bank or wage garnishment, Oral Exams, and/or levy of personal property). There is also the issue of whether or not the property is secured by a first mortgage that exceeds the value of the property. If the amounts owed on the first mortgage exceed what is owed to the Condominium, then the Condominium should consider a super-priority foreclosure, which is discussed below.
When considering whether to proceed with one of these remedies, we will review the particular account and conduct a title review of the property. This review identifies other lienholders, if any, that may have an interest secured against the property, and we explain how such interest may affect the statutory liens or judgments held by the Condominium. Specifically, we will look at the first mortgage, and estimate the balance thereon, as well as any outstanding tax debts. These are ordinarily the two liens that hold senior status to those of the Condominium. We also review public records to estimate the value of the property. We then analyze all of that information to determine the likelihood of the property being purchased at the foreclosure sale by a third party or, in the alternative, if the Condominium may have the opportunity to “purchase” the property in the event there are no competitive bids at the public auction.
The analysis we conduct is a two-step process: first we determine what outside factors might exist that would prevent, prohibit, or reduce the effectiveness of a foreclosure. For example, if there is a bankruptcy, tax lien, or other title issue, the property may not be a good candidate for foreclosure, or we may be barred by law from proceeding. If the property clears this first threshold, then we determine if a traditional condominium foreclosure or a super-priority lien foreclosure is appropriate. If we proceed with a super priority lien foreclosure, then we notify the owner, the mortgage bank, and any other lienholders, and the amount sought in the foreclosure sale is limited by law to only the preceding six (6) months’ worth of assessments, plus the attendant fees and costs but, those six (6) months’ worth of assessments takes priority over the first mortgagee’s lien on the property. On the other hand, a traditional condominium foreclosure includes the entire delinquent balance due in the foreclosure notice, and the sale will be conducted subject to the lien of the first mortgage.
After the sale is scheduled, the notice is recorded, and the publications scheduled, things may happen quickly. In a super-priority foreclosure, the lender bank will often contact our office asking to pay off their portion of the debt and protect their lien status. Owners will frequently attempt to negotiate a reduced payoff or a payment plan. They occasionally retain legal counsel to assist them in the process and the negotiations. Ultimately, the Condominium has significant control over the process, the settlement discussions and offers, and the sale. If payment is not remitted to the satisfaction of the Condominium, we proceed to auction.
At the auction, the Condominium is free to bid on the property itself. If the property is sold to a third party, the Condominium collects the portion of the proceeds to which it is entitled, and distributes any excess to the next lienholders in order of seniority. If the Condominium purchases the property, it may proceed to record a deed to evidence the transfer of ownership of the property and then seek to obtain possession. If the property is purchased at the foreclosure sale by a third-party, it is very likely that the Condominium will recoup some or all of the monies owed at the time of the sale, and a new owner will commence paying assessments. If the Condominium purchases the property at the foreclosure sale, it 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 Condominium.
If a condominium decides to proceed with a foreclosure sale, there are ancillary costs to cover such as filing fees, advertisement requirements in a local newspaper pre and post-sale, and legal fees for drafting the required notices of the potential sale pursuant to the DC Rules. We estimate the costs to be around $1,500.00 and the legal fees to be between approximately $2,000.00 and $3,000.00. In the District of Columbia, the time period for accomplishing the foreclosure is much faster and the cost greatly reduced as compared to other jurisdictions.
Should you have any questions or if you would like a list of recommended properties to identify as good candidates for possible foreclosure, whether super-priority or traditional, please contact our DC Foreclosure Specialist, Brian R. Fellner, at [email protected] or 410-740-8100 ext. 110, or any attorney at Nagle & Zaller.