The D.C. Foreclosure Process
After the "Great Recession" that began in 2008, many individuals have fallen behind on their mortgage payments and/or condominium or homeowners assessments. However, Boards of Directors have a fiduciary duty to their members to ensure the financial stability of their communities, so they may need to consider the option of foreclosing on a unit in order to get a new owner in the property who will pay the assessments.
In the event of a delinquency in assessments, normally the Association will make several attempts to reach the owner requesting that the overdue payments be made. However, under Section 42-1903.13 of the D.C. Condominium Act, Associations have an automatic lien on each unit to secure payment of that unit’s condominium fees. This lien encumbers the title to the unit, in a manner similar to a mortgage, and the lien is good for 3 years from the date on which the assessment or any, became due and payable. The D.C. Condominium Act also gives the Association the power to enforce these liens by foreclosing on the property.
The first step in preparation for foreclosure is obtaining a title report on the property. The title report shows all mortgages, judgments, liens and delinquent taxes on the property. The D.C. Condominium Act establishes a priority of payment for various claims from the proceeds of a foreclosure sale. First in line for payment are the costs of the sale; second are any delinquent taxes; third is the first mortgage; and fourth is the Association’s lien. However, if the first mortgage was recorded after March 7, 1991, the Association has priority over the first mortgage for six months’ worth of assessments. A review of the title report will give the Association an idea of any claims which must be satisfied prior to the Association’s claim and assist the Association in estimating whether there is enough equity in the property to justify a foreclosure sale.
Foreclosure sales in the District of Columbia are held at an auctioneer’s office. The auctioneer also advertises the foreclosure sale. Once a foreclosure date is set, a “Notice of Foreclosure Sale of Condominium Unit for Assessments Due” is filed with the D.C. Recorder of Deeds. A copy of the Notice is forwarded to the owner along with a foreclosure letter and a copy of the newspaper advertisement. These documents must be sent to the owner at least 35 days prior to the scheduled foreclosure sale. These documents place the owner on notice that a date and time have been set to sell the property at auction. Any other lien holder on the property should also receive a copy of the foreclosure letter.
Once the Notice of Foreclosure Sale of Condominium Unit for Assessments Due is filed, the foreclosure sale must be advertised three different times during the 15 days before the sale. The delinquent owner has the right to cure his or her delinquency any time before the sale. However, the delinquent owner is responsible for paying not only the Association’s lien, but also all foreclosure costs.
In response to the foreclosure, some owners file petitions in bankruptcy. If this occurs, the sale must be cancelled, and the Association must attempt to collect the money owed to the Association through the bankruptcy court. If the foreclosure sale is conducted, the auctioneer will sell the property to the highest bidder. After the sale, the proceeds are distributed in accordance with the priority established by District of Columbia law as discussed above. The new owner is now responsible for paying the assessments from the date of the sale forward. In addition, if there are renters in the property, the new owner is responsible for their eviction.
If you have questions about how to proceed with a foreclosure for your Association, please contact our office.