The New Jersey Condominium Act provides that where a unit owner fails to pay common expense assessments, a condominium association may foreclose in the same manner as a mortgage lender. However, one might ask why a condominium association would choose to foreclose when the subject unit is worth very little and most likely encumbered by a significant mortgage. To understand, one must remember that the purpose is often not to take title; rather, the purpose of the foreclosure is to get a paying owner in the unit any way possible.
RENT RECEIVER WITHOUT TAKING TITLE
One method is to institute a foreclosure for the purpose of obtaining a rent receiver. If a condominium association can successfully obtain a rent receiver, the association can collect rent from a tenant or if the unit is vacant, the association can place a tenant in the unit and collect rental income.
TAKE TITLE AND RENT
In instances where a rent receiver may not be available (i.e, owner occupied or a judge is not willing to grant a rent receiver), a condominium association may take title to the unit and rent it. If the condominium association is outbid at the sheriff’s sale, that individual would have to pay the condominium association the amount secured by its liens and pay common expenses assessments moving forward.
PRESSURE THE BANK OR WORK WITH THE BANK IN AN AMICABLE MANNER
Another possibility is to foreclose simply for the purpose of divesting the current non-paying unit owner of title and working with the bank (the first lienholder) in an amicable manner. The ”foreclosure crisis” has been caused by faults in the mortgage foreclosure process which has allowed non-paying unit owners to raise defenses specific to the mortgage foreclosure process (defenses not available to the unit owner in a condominium foreclosure action). If the condominium association takes title, these defenses are gone and the mortgage company as first lienholder may foreclose without the threat of a hard-line defense. This is of no concern to the condominium associatiom because again,
the goal is to have a paying unit owner, whether it be the bank or some other individual or entity. After taking title, a condominium association may intervene in the mortgage foreclosure action as current owner and help expedite the mortgage foreclosure or simply deed the unit to the mortgage company, i.e, the first lienholder.
Hence, there are many reasons for a condominium association to utilize its powers under the New Jersey Condominium Act and foreclose. The key is being creative and attacking each matter with its own strategic approach. Our firm has utilized these methods to collect funds and move associations one step closer to financial stability.
Brian Rader
brader@theraderlawfirm.com
