6-Month Super-priority Condominium Foreclosures by the Association

There is an alternative to ordinary condominium lien foreclosures that BuckmanLegal, PLLC has begun to use. We have made the change due to current market conditions and the fact that there is a de facto residential foreclosure moratorium in DC.

The D.C. Condominium Act gives the condominium association a lien priority ahead of the first mortgage to the extent of six months of regular assessments (no acceleration and no special assessments). We refer to this lien priority as the “six-month super-priority.”  What this lien priority means is that the association may foreclose on a lien only for the most six most recent months of regular assessments plus interest, costs of collection, attorney’s fees and advertising costs. Perhaps most critically, the sale will not be subject to the first mortgage. In other words, the successful bidder (or the association if it takes the unit back) is not stuck paying off the first mortgage.  The first mortgage would be entirely wiped out by the foreclosure.

The process of foreclosure is exactly the same up through the sale. The only differences are the calculation of the amount that must be paid to stop the sale and the fact that the association’s opening bid is considerably less. This changes the economics in a number of ways. On the negative side, while the unit owner remains personally liable for unpaid assessments due for months prior to six months before the foreclosure, and can be sued for that amount, the association will not automatically recover this money through the foreclosure process. The association can only keep the six month amount and must remit any surplus to the first mortgagee. On the positive side, in a majority of cases, the first mortgagee will pay the six-month amount to keep from having its first mortgage wiped out, which gives the association cash in hand, and the association may be able repeat this process every six months, thereby not losing anything more than the unpaid assessments due for months prior to six months before the first time it does a six-month super-priority foreclosure.

One advantage of the foreclosure may be that if neither the unit owner nor the first mortgagee pay to stop the foreclosure, then there may be a greater likelihood of getting bidders at the foreclosure sale. These bidders would produce cash in hand, and will become new unit owners that will be liable for condo assessments on a going forward basis. Also, even if there is no new owner, and the association takes the unit back, the first mortgagee cannot foreclose on the unit. Therefore, the association will not be time delimited on collecting rent to cover its losses.

We have conducted condominium lien foreclosures numerous times over the past couple of years. In almost every single case, the lender has stepped up and paid the amount being sought. Moreover, in the vast majority of cases, BuckmanLegal, PLLC has been able to collect all of the amount owing—not just the most recent 6 months—due to the specter of the association pursuing condominium lien foreclosures again and again.  In not one case have we been forced to actually sell any units.  And in every single case, we were successful in getting back every penny of the fees and costs due. This means that the process did not cost the associations anything. Of course, past performance does not guarantee future results. The law firm may be reached by sending an email to buckman@buckmanlegal.com.

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Foreclosures in the News

Foreclosures have received a lot of media attention in past weeks due to revelations that foreclosure documents have been signed without proper review.  Setting aside the media and political hype, you may be wondering what this means to you.  Even if you never face foreclosure on your home, potentially faulty practices in the mortgage industry require that you pay close attention to the management of your loan.

Your mortgage loan is represented by a promissory note that you signed promising to pay back the borrowed money in monthly installments to the lender.  Oftentimes, the lender will sell the note to another company.  Whether the note is held by the original lender or by another entity, the holder of the note may have an outside company service the loan for them.  The servicer collects payments on a monthly basis and applies them to principal, interest, and escrow according to the terms of your note.  In most instances of foreclosure, the servicer manages these proceedings, as well, on behalf of whoever currently owns the note.  Legally, when foreclosure proceedings are brought, whether in a jurisdiction with court oversight (such as Maryland) or a jurisdiction where there is no court involvement (such as DC and Virginia), the noteholder must bring these proceedings and not the servicer.

The issues that have gained media attention have to do with court documents being filed by individuals attesting to facts such as who the actual holder of the note is and the exact amount of money due to the lender.  Individuals have admitted that they have signed affidavits and other court pleadings attesting to the ownership of the note or the exact amounts overdue on the notes without actually reviewing the file to determine the accuracy of the information.  While such poor practices undermine the judicial process of a foreclosure, these foreclosures were usually brought against homeowners that were actually in default on their loans and would have lost their homes anyway.  There were, however, a small number of homeowners that might have been able to redeem their loans and avoid foreclosure had the documents been properly reviewed.  Furthermore, even in “non-judicial” jurisdictions, filing defective documents within the foreclosure process could potentially cause the foreclosure proceedings to legally fail.

Most of the foreclosures that have been conducted with tainted documents, however, have gone uncontested by the homeowners.  Most uncontested foreclosures have been conducted against homeowners that realize that they cannot make their mortgage payments and cannot save their homes.  For this majority, the defective filings will not have an effect.  This is not to say that some wrongful foreclosures do not slip through the cracks, but only a small percentage of foreclosures occur in error.  In contrast, those homeowners that do not agree that they are in default, or those that have been working with their lenders to avoid foreclosure, will make the effort to defend or stop the foreclosure action. For this minority, defective filings could unfairly undermine their chances of defending against foreclosure.

Defective filings have shined a light on the fact that the volume of loans in default has overwhelmed the ability of the banks and the judicial system to process foreclosure cases efficiently.  The process of negotiating loan modifications and short sales has also suffered.   In addition, many individuals have started to question the application of their payments to principal, interest, and escrow and have complained that they have not received an accurate accounting.  In many instances, the failure of the servicers to properly apply payments can make a loan in good standing appear to be in default.

What should you do to protect yourself?  Carefully review all correspondence from your mortgage lender, servicer, and their attorney.  Make sure that their information on your loan matches what you believe to be true.  Question any discrepancies.  If you are in default or default is imminent, contact an attorney or a qualified non-profit organization to assist you in negotiating with your lender.  If you receive a notice of foreclosure or a notice of intent to foreclose from an attorney’s office, do not ignore it, even if you are in the middle of negotiations with your lender.  Many people wrongly think that such correspondence has been sent in error and do not respond to these letters.  If you receive such a letter, you need to both contact your lender immediately to find out why it was sent and seek immediate legal advice.

An Update on the $5,000 Tax Credit in the District of Columbia

I contacted the office of Congresswoman Eleanor Holmes Norton (D-DC) to get an update on the $5,000 tax credit for the District of Columbia. I learned from Ms. Tai M. Brown, Legislative Associate, that “[t]he $5,000 first time homebuyer tax credit for the District passed the House and Senate, but has yet been signed into law.”  Ms. Tai speculates that because the tax credit has been retroactive in previous years, in its final form it will likely be “retroactive for 2010.”

Congresswoman Norton’s website provides a press release on the tax credits here.

Tax Credit Deadlines for Homebuyers

You may have a lot of questions about the current $8,000 federal tax credit for first-time homebuyers. 

Here are the short answers:

1.         First-time homebuyers have until April 30, 2010, to sign a contract for the purchase of single family homes, condominiums and cooperatives for use as a primary residence.  Settlement must occur on or before June 30, 2010.

2.         The maximum amount of the credit is $8,000, or 10% of the sales price up to $8,000.

3.         The purchaser must reside and use the home as a primary residence for 36 consecutive months, or the tax credit may have to be repaid.

4.         Individuals earning up to $125,000 a year and couples earning up to $225,000 a year are eligible.

 5.         Anyone taking the credit from a home purchased in 2010 may take the Credit on their 2009 federal tax returns which is due April 15, 2010.

A non-dependent child over the age of 18 can qualify as a first time homebuyer and receive the credit even if a parent who does not qualify as a first time homebuyer co-signs the mortgage. The property must be the non-dependent child’s principal residence to qualify.

There is also a credit for current, qualified homeowners for a $6,500 federal tax credit.

As an alternative to the tax credit describe above, residents of the District of Columbia may be eligible for a tax credit of up to $5,000 even after April 30, 2010, assuming that the credit is extended beyond that date. The extension has not, however, been officially enacted by Congress, but is in a conference committee.

Please note that at no time will purchasers of homes in the District of Columbia be eligible for both the $8,000 tax credit and the $5,000 tax credit. Taxpayers must opt for one or the other.

It does not appear that this $8,000 tax credit will be extended beyond April 30, 2010.

A tax advisor should always be consulted to determine exactly what tax implications these issues will have on you and your property before taking any action on your own.