ATTORNEY BLOG: What happens to a homeowner’s association’s unpaid assessments when the mortgage company forecloses against the unit?

By: Craig A. Goddy, Esq.

One of the questions the Real Estate and Property Services team often gets asked by the homeowner’s associations and condominium associations we represent is, “What happens to the association’s unpaid assessments when the mortgage company forecloses against the unit?”

Unfortunately, mortgage foreclosure actions are a fairly common occurrence in many communities in Western Pa. A representative of the association 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. However, certain amounts due are protected under the Pennsylvania Uniform Condominium Act and the Uniform Planned Community Act.

The Pennsylvania Uniform Condominium Act and the Uniform Planned Community Act each contain provisions which protect 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. The association is entitled to the collection of those amounts incurred during this six-month period despite the sheriff’s sale of the property.

The collection of the outstanding lien depends upon whether the property was sold to a third party or taken back by the bank. So after the sheriff’s sale, the first thing an association needs to determine is the identity of the new owner of record to ensure that the it is communicating with the proper party in connection with the collection of the outstanding lien against the unit. If the property is sold to a third party at the sheriff’s sale, the association may look to the sheriff’s office to collect the lien through the distribution process (assuming any funds are available). On the other hand, if the property is taken back by the mortgage holder (typically a bank), the association may pursue the collection of the lien via contacting the foreclosing attorney and/or directly against the bank as the new owner of the unit.

With respect to the balance of the association’s unpaid assessments that are not protected by statute, the lien is extinguished against the unit only. However, the prior unit owner remains personally liable for the unpaid amounts. 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). The association should consider securing a judgment against the former unit owner for the balance in order to preserve its right to collect in the future.

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