The Dirty Deed…In Lieu of Foreclosure

When an owner decides that they simply cannot pay their accrued assessment arrearage, they often take steps to either maximize the amount of time that they can hold on to (ie: live in or rent) their property, or alternatively, may endeavor to quickly hand over the subject property to minimize their personal liability.  With regard to the latter, the delinquent owner may make the association an offer where the owner would agree to deed over the property rather than endure the foreclosure process.  In exchange for this quick turn over of title, referred to as a “deed-in-lieu” (in lieu of foreclosure), the owner usually requests a waiver of personal liability for the accrued debt.  Since foreclosure can be both time-consuming and costly, this is often an attractive option to an association, especially where the unit is in habitable condition and the association can quickly get a renter in place.

It is important, however, that the association do its homework before accepting such a deed.  The reason being that there may be other junior lienholders out there with rightful claims that are secured by the property.  The subject property may have no mortgage on it, leading the association to think that it is getting clear title by accepting a deed-in-lieu, but that is not necessarily true.  The association does get title to the property, but that title is still subject to junior claims that may exist against the property.  For example, if the original owner had work performed by a contractor before deeding the property over to the association and that contractor placed a lien, called a mechanic’s lien, on the property due to nonpayment, the contractor would still have a rightful encumbrance on the property which he or she could foreclose on and in doing so, dispossess the association of the property.  Of course, had the association learned of this encumbrance and foreclosed on its own lien rather than accepting a deed-in-lieu, these types of junior claims would have been wiped out (ie: foreclosed) and the association, if it took title through the foreclosure process, would have obtained clear title rather than what this author calls a “dirty deed.”

The lesson is that the quick and easy option often has hidden pitfalls and it is important that your association consult an attorney to discuss and review these types of decisions before any action is taken.

Daniel Wasserstein

E-mail: danw@wassersteinpa.com

561-416-0170

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2 comments on “The Dirty Deed…In Lieu of Foreclosure

  1. I was deneid being seated at last years annual election based on less than 20% of voting members participation with the board election. This, dispite the fact that 4 people, myself and the three cary-over officers submitted candidacy and our bi-laws alow for 16 board members to serve on the board. Florida law provides that there is no need for an election if fewer people run for office than there are open positions to be filled. Those who run should be seated. Managment claimed that the election was not valid and therefore the current board would “carry over” and I was not seated. I questioned whether the current board ever had 20% quorum and I was never given proof of this. Florida law sates that there is no quorum requirement for elciton to the board, yet it also states that if there is an election and fewer than 20% of members vote, it is not a valid election. I know that my candadacy was denied due to my differences with management and the current board, but I don’t know how to prove this legally. Can you offer any thoughts on this? Thanks, Dennis Dobbins. Ph: 313-303-4398.

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