In the recent months, as there has been a general improvement in the real estate property values, the number of foreclosure sales with surplus funds has increased. In other words, there are more foreclosure cases now where the properties are sold at a foreclosure sale for an amount that is higher than the amount of money due and owing to the foreclosing lenders.

When such sales occur, there are surplus funds that are being held by the sheriffs or court-appointed selling officers that can be distributed to the former owner and/or the former owner’s creditors who have properly asserted their liens in the foreclosure lawsuit.

This is an important development for Condominium and Common Interest Community Associations because the surplus after a foreclosure sale may allow them to recover amounts due and owing by former owners for unpaid common expenses and other charges (in whole or in part). However, in order to be able to recover such amounts from the surplus, it is necessary for the Associations to assert their statutory liens for such amounts in the underlying foreclosure lawsuits.

Specifically, it is necessary for an Association to file a formal Answer to the Foreclosure Complaint and establish a claim for a lien comprised of outstanding assessments and other lawful charges. This process includes a submission of an affidavit to the Court to confirm that there is a lien and a balance due to the Association, prior to entry of the foreclosure judgment.

Although, there is no definitive case law on this issue, many Circuit Court Judges take the position that if an Association, or another lien holder for that matter, fails to timely file an Answer and assert its right to a junior lien prior to entry of the judgment of foreclosure, such claim is waived after the foreclosure sale takes place.

Properly and timely asserting a right to recovery of unpaid assessments in a foreclosure action may provide Associations with an easy and cost-effective way of recovering amounts due by delinquent owners, without the need for filing relatively costly lawsuits against the former owners. Specifically, if there is surplus, the surplus funds will be distributed to the Association after the foreclosure sale takes place without any strings attached. On the other hand, failure to properly assert a right to recovery of unpaid assessments in a foreclosure lawsuit may result in extinguishment of the Association’s statutory lien and waiver of its claim for recovery from the surplus funds after the foreclosure sale takes place.

Our office has a Foreclosure Department that specializes in monitoring foreclosure lawsuits and can assist your Association in making the appropriate decision when a foreclosure lawsuit is initiated against a unit owner in your Association. If we can be of assistance, please contact KSN at 855-537-0500 or through our website.