Unfortunately, mortgage foreclosure actions are a regular occurrence in many of our communities. You may receive a notice of mortgage foreclosure on behalf of the Association or learn that a bank is and/or has foreclosed against a unit in your community. Generally speaking, a mortgage foreclosure sale extinguishes all liens which are second and/or junior to the foreclosing party's lien unless specifically preserved by statute. Fortunately, the Pennsylvania Uniform Condominium Act and the Uniform Planned Community Act are two of those statutes.

The Pennsylvania Uniform Condominium Act and the Uniform Planned Community Act each contain provisions which protect at least a portion of the Association's lien against a unit when the unit is the subject of a mortgage foreclosure action. The assessments which come due during the six-month period immediately preceding the date of the mortgage foreclosure sale are not extinguished and continue as a lien against the property unless such assessments are paid out of the proceeds of the foreclosure sale. Accordingly, the Association is entitled to the collection of those amounts incurred during such six-month period despite the Sheriff's Sale of the property.

As part of the collection of the Association's lien against the unit, we typically prepare appropriate notices to the Sheriff and the foreclosing attorney prior to the scheduled sale putting such parties on notice of the Association's potential lien against the unit being foreclosed upon. Once the foreclosure sale has been completed, the Association needs to reconcile the account history and determine the amount of the outstanding lien against the unit. Reconciliation of the account history can be complicated and requires careful attention to make certain that the Association is not misrepresenting the amount owed to it.

The collection of the outstanding lien depends upon whether the property was sold to a third party or taken back by the bank. Careful attention should be given in determining the new owner of record after the Sheriff's Sale to ensure that the Association is communicating with the proper party in connection with the collection of the outstanding lien against the unit. To the extent the property is sold to a third party, the Association may look to the Sheriff's office to collect the lien through the distribution process. To the extent the property is taken back by the bank, the Association may pursue the collection of the lien via the foreclosing attorney and/or directly against the bank as the new owner of the unit.

With respect to the balance of an Association's lien which is not protected by statute, such lien is extinguished against the unit only. However, the prior unit owner remains personally liable for such amount. This means that the Association may be entitled to pursue an action against the prior unit owner for the balance of the lien (i.e., the difference between the total outstanding delinquency and the six-month portion of the lien). At the very least, the Association should consider securing a judgment against such former unit owner for the balance to preserve its right to collect the same in the future.

As a professional Property Manager, I am sure you have seen this scenario before.  You are faced with a chronically delinquent unit owner who has made no good faith effort to bring their considerably delinquent account current.  They frequently bounce checks or specific bank account information is not available, so a writ to attach their bank account is not likely to result in the recovery of monies due to the Association.  What's the Association to do?

Your legal counsel has obtained a title report for the delinquent unit which reveals a significant amount of equity in the property.  As a result of the property's considerable equity, the Association can proceed with a foreclosure action.  Problem solved.  The Board approves the foreclosure action and your legal counsel moves forward to secure a judgment and schedule the unit for a Sheriff's Sale.  On the eve of the Sheriff's Sale, the Board instructs you to go through with the sale, but under no circumstances does the Board want to take ownership of the unit.  Herein lies the problem, as these instructions are incompatible.

As legal counsel to over 200 community associations, we go to great lengths to assure that our clients have a clear understanding of the foreclosure process and the possible outcome of a Sheriff's Sale.  One such outcome is that the Association takes title to the unit and recovers the delinquent assessments through resale of the unit.

Ideally, the foreclosure of the property will result in the unit owner's payment of the past due assessments or a third party will purchase the property at the Sheriff's Sale for an amount sufficient for the Association to recover all past due assessments. However, in the event that the unit owner does not pay and the matter proceeds to Sheriff's Sale, there is a real possibility that a third party may not purchase the property. So what happens?

To the extent that there is no willing third party buyer at the Sheriff's Sale, the property is "sold" to the Association by the Sheriff for "costs." The "costs" of the Sheriff's Sale vary widely from county to county, as does the timing and method of payment required from the Association. However, the Association may then proceed to recover the past due assessments and costs incurred with respect to the Sheriff's Sale of the property by cashing in on the Unit's equity through the resale of the property. This is why it is critical that the Association confirm that there is sufficient equity in the property prior to commencing a foreclosure action. Legal counsel should be consulted in order to evaluate the priority of the Association's lien for unpaid assessments and to determine if the extreme measure of foreclosure is appropriate on a case by case basis. Finally, the Board must have a clear understanding of the possible outcome of the Sheriff's Sale and be committed to seeing the process through to conclusion.

Under both the Pennsylvania Uniform Condominium Act and the Pennsylvania Uniform Planned Community Act, an Association has the right to foreclose upon the Association's statutory lien in a manner similar to a mortgage foreclosure.  The provisions set forth in both of these Acts are retroactive and, therefore, apply to all condominiums and planned communities in Pennsylvania.

While the foreclosure process may be complex, it can be a useful tool under certain circumstances. Foreclosure may be an appropriate remedy where an Association has exhausted all other remedies, where collection efforts have been frustrated and/or past due assessments are significant.  Therefore, careful consideration should be given to the facts of each case in order to determine if foreclosure is an appropriate remedy.  The analysis includes a determination of the equity in the property and the priority of the Association's statutory lien in connection with any other liens, judgments, or mortgages against the property.  In addition, the Association's potential ownership of the property raises a host of other considerations which must also be addressed, including:  Is the Association responsible to satisfy the first mortgage lien or tax liens, if any, against the property?  What is the condition of the property?  Will an action in ejectment be necessary to evict the current occupant of the property?  What are the Association's responsibilities in terms of any prior liens to which the property remains subject?

We recommend a careful review of all of these issues by the Association's Board and legal counsel to determine if foreclosure is an appropriate remedy.