While no one wants to foreclose on their neighbors, foreclosure is an unfortunate ending to a lien enforcement action. The process of a lien foreclosure sale in Massachusetts can be complicated to work through and while the foreclosure sale is handled by Trust counsel, the following lays out the basic required steps of the foreclosure process that both board members and property managers should be familiar with.
It is important for a condominium board and property managers to have a general understanding of the lien foreclosure sale process and the Trust’s duties so that if one is to occur all the appropriate legal steps are taken and the interests of the condominium are protected.
Once a condominium trust has completed the legal process of prosecuting a lien enforcement action and has received a Judgment and Order, the Trust may foreclose its lien upon the Unit by holding an auction conducted by a licensed auctioneer. The decision to proceed with a foreclosure sale is never an easy one, but the Board of Trustees needs to remember it has a fiduciary duty to the Trust to enforce an owner’s obligation to pay their proportionate share of the common expenses. Failure to exercise its duties to enforce payment of common expenses affects the Trust’s budget and the Trust’s ability to provide for and pay for common services; this, in turn, can create budget shortages that negatively affects all other unit owners. Prior to instructing Trust counsel to proceed with the foreclosure sale, the Trust should vote so that there is a record. The Trust should be aware that it needs to be mindful to treat all owners equally in collection actions as the failure to foreclose on some unit owners and not others could expose the Trust to claims of abuse of power or bias by other owners in collection. However, the Trust still has the power to enter into a reasonable repayment agreement with an owner who demonstrates the ability to reinstate. Should they fail to comply with the repayment agreement, the Judgment and Order to foreclose remains valid and the foreclosure can still proceed.
Just because a foreclosure lien sale has been scheduled, it does not mean that the sale will happen. A unit owner’s bank may pay the priority lien, the owner could reinstate or could refinance, the owner may put the Unit up for sale, or the owner could file for bankruptcy. While the possibility of a lien enforcement action continuing all the way through to an actual foreclosure sale is a distinct possibility, the percentage of cases that go to sale are low.
There are costs involved with the foreclosure process such as legal fees, newspaper advertising, and auctioneer fees. However, it is important for a Trust to note that the proceeds from the foreclosure sale reimburse the Trust for these expenses. The first step of the foreclosure process is for Trust counsel to engage a licensed auctioneer to conduct the sale. Trust counsel then prepares a Notice of Sale which includes the date, time, and place of the sale, and a description of the Unit. The Notice of Sale is required to be published in a newspaper that is published or circulated in the county where the property is located for three consecutive weeks. In addition, the auctioneer will engage in promotional advertising to build up interest for the sale.
No less than fourteen days prior to the foreclosure sale date, a copy of the Notice of Sale must be mailed by certified and first-class mail to the unit owner and to all parties having a recorded interest in the unit no less than thirty days prior to the foreclosure sale date. A Notice of Sale should also be sent to the town taxing authority, even if there are no tax takings of record. A Municipal Lien Certificate is ordered from the town which will disclose any outstanding real estate taxes and municipal liens such as water and sewer charges.
It is our practice to send out the Notice of Sale letters twenty-one days prior instead of the fourteen days, as this provides time for the unit owner to make contact and bring the account current; or for a bank to make contact and pay the priority lien amounts; or for return mail to be received with forwarding address information so that another letter can be sent out within the fourteen-day period.
After the Notice of Sale letters are mailed, Trust counsel prepares a Memorandum of Sale and the bidder’s packages. The Memorandum of Sale acts as the buyer’s purchase and sale agreement and sets forth the terms and conditions under which the buyer is purchasing.
It is important that bidders are well informed prior to the foreclosure sale. Trust counsel prepares bidder’s packages which contain a copy of the Municipal Lien Certificate, a copy of the Unit Plan, the Judgment and Order, and the Memorandum of Sale. It is important to note that only public information may be provided should bidders call for information prior to the sale. The bidder may be provided a copy of any items in the bidder’s package and whether there is a mortgage of record, but they cannot be provided any information which could be considered as private, such as to the amount of the lien currently owed, or personal, such as occupancy or the unit owner’s contact information. As the Trust has a fiduciary duty to obtain the highest possible sales price for the owner, it must avoid anything that could chill the lien sale, so all questions from potential buyers should be referred to Trust counsel.
Prior to the sale date, the property manager should provide Trust counsel with information on any possible upcoming supplemental assessments which have been passed, recently assessed, or will be assessed in the next few months so that this information can be provided to bidders.
After all the steps listed above are complete, it is time for the lien foreclosure sale. Audio or video recording of the sale is a good idea to prevent any bidder from falsely claiming a certain statement as to the property was made. At the appointed time, the Auctioneer will read aloud the Notice of Sale and Memorandum of Sale to all bidders. Trust counsel will make announcements to the bidders that they are purchasing the Unit “as is”, in its present condition and subject to any outstanding real estate taxes and that the successful bidder shall be responsible for all recording fees and subject to any occupants – meaning that the successful bidder shall undertake eviction of the former owner or tenants.
Once the high bid is accepted and the auctioneer announces that the property is sold, the Trust’s counsel has the successful bidder sign the Memorandum of Sale and secures the deposit check to hold pending the closing. Trust counsel will work with buyer’s counsel for the closing and thereafter, handle disbursement of funds, including the common expenses due and owing to the Trust.
To conclude, in the lien enforcement process, foreclosures sales are not common, but they do happen. It is important for a condominium board and property managers to have a general understanding of the lien foreclosure sale process and the Trust’s duties so that if one is to occur all the appropriate legal steps are taken and the interests of the condominium are protected.
If you have any need for legal services related to this article, or any similar matter, you can email Brendan at firstname.lastname@example.org, Laura at email@example.com or any of our other attorneys at Moriarty Troyer and Malloy LLC at 781-817-4900 or firstname.lastname@example.org.