Ask the Attorney By Nigel Mendez, Esq., Carlson & Associates, Ltd.
This column is comprised of questions that have been posed to me by homeowners, property managers and related professionals regarding legal issues that they have encountered with respect to their associations. Discussion of these questions, as well as prior questions, can be found on the CAI-MN LinkedIn page: tinyurl.com/CAIMN-LinkedIn.
Q:
judgment lien holder. Each junior lien is assigned a priority, and the right to redeem the property is executed in order of that priority. The most senior junior lienholder has an opportunity to redeem from the foreclosure sale first, followed by each successive lien holder. Each junior lienholder has a seven day window to redeem from the more senior lien holder. In Minnesota, an association’s lien for assessments is junior to the first mortgage on the property, but ahead of any second mortgage. This means that when a mortgage company forecloses, and the owner does not redeem from the sale, the association is able to redeem the property at the end of the owner’s redemption period. The redemption price would be the same price that the owner would have had to pay — the amount of the bid at the foreclosure sale, plus any amounts that came due and owing during the redemption period. Obviously, that might be a significant sum of money.
An association I manage was contacted by an investor who wants to buy the association’s lien. What is going on here?
A:
In order to understand why the investor is interested in the association’s lien, it is important to first understand lien priority and redemption rights. Once a foreclosure sale is held (either a mortgage foreclosure or assessment lien foreclosure) there is a period of time in which the foreclosed party (the homeowner) is able to redeem the property from the foreclosure. This time period is called the redemption period, and usually lasts six months, but can be five weeks or twelve months in certain situations. Before the end of the redemption period, the foreclosed party must pay the amount bid at the foreclosure sale, plus other amounts that have come due since the sale date (this is most commonly interest, recording fees, etc.) in order to retain ownership of the property. If the foreclosed party is not able to redeem the property, the junior lienholders have an opportunity to redeem in order to protect their interest in the property. Examples of junior lienholders are an association with an assessment lien, a second mortgage, and a
If the association redeems the property, any other junior mortgages will also have the right to redeem. These redemptions would pay off all of the lienholders above them. The first redemption after the association would have to pay the amount that the association paid to redeem, plus any amount that the association was owed on its lien. In essence, a junior lienholder has to make any more senior lienholders whole. This process continues down the line of junior lienholders until there are no more parties, or no more parties that wish to redeem. The last party to make a redemption is the one who ends up with the property. So, why is the investor contacting you to purchase your lien? It is probably because the mortgage foreclosure price was below the value of the property. For example, recently a property was foreclosed on by a mortgage company. The bid at the sale was $54,000. The tax value of the property was over $100,000. There was no second mortgage on the property. In this instance, the association, redeeming as a junior lien holder, would have to pay the mortgage company approximately $54,000. If the association either does not have that amount of cash available, or does not want to use its funds to invest in a unit, an investor can often be found to purchase the redemption rights from the association. The investor then steps into the shoes of the association and redeems as a junior lienholder. While it is convenient when an investor contacts an association directly, you can’t always rely on that happening. I recommend to my clients that foreclosure sales in their association be tracked
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