Foreclosure Fundamentals: Follow All the Rules

A Florida HOA didn’t provide an owner it was trying to foreclose on with documents required by the declaration. The result? The case is going to trial (Pash v. Mahogany Way Homeowners Ass’n). Read on to learn some important lessons about how to handle foreclosures.

Budget Procedures Matter

The HOA filed a foreclosure action against an owner, alleging that he hadn’t paid outstanding quarterly assessments and costs. It asked the court to rule in its favor before trial — in legalese, this is called summary judgment.

Essentially, the HOA argued that no trial was necessary it had already made its case by presenting copies of its declaration, demand letters sent to the owner, and an affidavit from the association president. But the owner contended that the association shouldn’t be granted summary judgment because it didn’t comply with the declaration’s notice requirements.

The declaration required the HOA to submit an annual budget to each owner, setting forth the quarterly assessments for each year and written notice with the due dates for those assessments. But the association’s evidence for summary judgment didn’t include the relevant budgets and notices or any proof that they were provided to the owner.

So the court concluded that the association’s compliance with the declaration’s requirements before imposing its lien and foreclosing remained in dispute. In other words, a trial was necessary to determine whether the association complied and could proceed with foreclosure.

Cross Your T’s, Dot Your I’s

The good news is that it’s uncommon for governing documents to mandate notices of assessments and due dates.

“Most governing documents don’t require that level of notification,” says K. Joy Mattingly, managing shareholder for the collection and foreclosure department at the law firm Becker & Poliakoff, in its Fort Lauderdale, Fla., office.

And it’s not even clear from the case that the HOA didn’t actually comply with the notice requirements. “It sounds like what happened here is they just didn’t provide the proof that they did,” Mattingly says. The association may ultimately prevail, but it’s likely going to require more time and money than hoped.

Regardless, though, the case highlights how vital attention to detail is when pursuing foreclosure. “It’s important for associations to be aware of the requirements on them, their duties and responsibilities,” says Stephen Davis, an attorney with the firm Carmody MacDonald who represents more than 150 associations in the St. Louis, Mo., area.

“When we conduct foreclosures for a community, we explain ahead of time how that works for the board in detail and take them through it because it’s not something most people really are familiar with.”

Mattingly has several items she wants to see from clients that want to pursue foreclosure.

“The thing we typically look at the most when we start a collection is making sure we have a really clear and accurate ledger that dates back to a zero balance,” she says. “We want to be able to see where the delinquency arose. We also make sure the documents support the interest rate and late fees we charge.”

Special assessments require more. “When a special assessment was passed, we’d require all the supporting documentation about notice, minutes, etc.,” Mattingly says.

Finally, she cautions associations and managers against letting collection matters become routine — because you risk not noticing when the wheels start to come off. That might have been what happened in the Florida case.

“If an owner told me, after I’d sent notice, that the association failed to follow these procedures when adopting a budget,” Mattingly says, “I’d reach out to the association see that they did what they were supposed to do.

“You can’t be too careful when owners dispute things. You really have to pay attention. Had they paid attention here and filed proof, the result might have been different.”

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