[WSBARP] Judicial foreclosures and HOAs

[Rob Wilson-Hoss]

          I just want to introduce this topic and see if anyone else cares.
I represent many HOAs and some condos and coops. This means many
interactions with lenders around nonpayment of both loans and association
fees. These days, lenders are filing more judicial foreclosures to address
dead borrowers and other difficult issues. That is their choice. But they
almost always name the association as a defendant, and claim, and seek
relief about, extinguishing all rights of defendants.

 

          This is absurd, as a bank judicial foreclosure of a deed of trust
in a covenanted community cannot (usually) extinguish the application of the
covenants to the property. Certainly one issue is priority, bank loan to
association delinquency, and that is a complicated issue involving the form
of the association (condo or HOA/coop); if a HOA/coop, the language of the
governing documents; and so on. Putting priority and payment issues aside,
there are very likely a whole lot of other very important rights that
associations and members of associations have in property that is being
foreclosed, including the rights to the property condition and behavioral
covenants, for example.

 

          For a lender to file a complaint and serve it on an association
that seeks to extinguish those rights is, well, not something they teach in
law school. Of course, my release date from law school was 1978, so things
may have changed.  

 

          So, who cares? First, there is a difference between associations
with lawyers who call the banks on these complaints, and insist on a
dismissal and judgment language that excepts covenant rights; and smaller
(usually) associations that just ignore these lawsuits. But if the
association is sued and is defaulted, then the judgment is going to say that
all of its rights are extinguished.  Never mind the mess that needs to get
unwound around unknown persons claiming rights being served by publication -
I doubt that this can reach the individual members who usually have
individual rights to enforce covenants, because they are known, and without
service the judgment is void against them for want of jurisdiction.  

 

          I guess I care because these things mess up the record for the
lots foreclosed and sold.

 

          I will say that the bank lawyers I have dealt with about these
issues typically agree, agree to a dismissal, and usually include language
in the judgment that excepts the association, although not always. Twice I
have had to make them go back and change the judgment to except the
association from the general language extinguishing all other liens or
encumbrances. 

 

          Second, if an association is not prior, such as a condo or HOA
without priority language, why should the association have to pay for an
hour or two of its lawyer messing around with this to get the lender to do
what it should have done in the beginning? And then following it to the end
to make sure the judgment is what it is supposed to be? I suppose I could
send out a CR 11 warning right away and let them take care of it directly,
but that sounds like it would be more work in the long run, in most cases;
and very unfriendly as well. 

 

          Anyone else care? Anyone? Buehler?

 

Rob 

 

Robert D. Wilson-Hoss 
Hoss & Wilson-Hoss, LLP 
236 West Birch Street 
Shelton, WA 98584 
360 426-2999

www.hossandwilson-hoss.com
rob at hctc.com

 

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