Debt collection is not a phrase many of us want to hear, but for Associations it is common place when homeowners fail to pay their assessments and fees. The delinquent assessments accrue and the Association is forced to take action to collect the debt. Pre-lien notices and lien notices are sent to the homeowner to prompt payment. When the homeowner continues to disregard the payment of assessments and the notices, the Association may turn to foreclosure of the property. There are two avenues of foreclosure available for Associations: Judicial and Non-Judicial.
Judicial foreclosure is done through the court system. After giving the appropriate notices to the homeowner and filing for a lien against the property, the Association may file a lawsuit with the court. The Association may seek both the ability to foreclose on the property and seek money damages, which can be obtained by means such as wage garnishment or bank levy. If, after obtaining a judgment, the Association decides to foreclose on the property, the foreclosure will be done by the county sheriff’s office. The proceeds of the sale will first pay court costs and the costs associated with the foreclosure. Then the Association and other creditors the homeowner may have will receive what they are owed.
The benefit of doing a judicial foreclosure is the ability to seek a deficiency judgment. There will be times when the proceeds of a foreclosure sale do not fully compensate the Association for the debt that it is owed. When that occurs, the Association can seek a deficiency judgment. A deficiency judgment is a judgment for the remainder of the debt owed to the Association. When considering whether to obtain a deficiency judgment, the Association should consider the homeowner’s right of redemption. The debtor homeowner is allowed to payback all the debt owed, and if he does so, he is given back his property. When an Association obtains a deficiency judgment, it extends the amount of time the homeowner can exercise his right to redeem the property.
Non-judicial foreclosures can be done by the Association without having to file a lawsuit. They are typically faster and inexpensive in comparison to judicial foreclosures, and there is no court oversight. Because there is no court oversight, it is highly important the Association follow the exact steps and guidelines prescribed by the California legislature to perfect the process. While the cost and speed of a non-judicial foreclosure are beneficial, the Association may not seek a deficiency judgment, nor may the Association seek payment of the debt by other means such as wage garnishment.
Both foreclosure options have their own pros and cons. As such, different debtors will call for different forms of foreclosure to adequately compensate the Association for the debt owed. An Association should, therefore, consider the pros and cons provided by both foreclosure processes, the economic background of the delinquent homeowner, and the Association’s own economic standing when considering which foreclosure process it is going to employ for the specific debtor and his property.