Condo Foreclosure: The Process Explained

Condo foreclosure follows the same general process as any mortgage foreclosure. That process can take many years to complete, and it can result in substantial financial loss to both the borrower and the lender.

Step 1: Missed Payments

Your mortgage lender must notify you of their intent to foreclose on your property. You cannot speed up this process, and you cannot instigate a foreclosure on your end. As a result, it is first necessary to miss payments for at least 90 days. During this time frame, you will watch your credit score drop. You may receive attempts to collect from your lender. If you intend to allow the condo to go into foreclosure, you cannot pay when the lender asks. 

Step 2: Foreclosure Notice

Once you have failed to respond to lender requests for payment, you will receive notice of the lender's intent to foreclose. Depending on the state where you own your condo, you will have a limited time frame in order to respond to this request. If you do not intend to pay, this is the point where you should hire a lawyer to help you finalize the foreclosure. 

Step 3: Foreclosure Proceedings

The lender will begin foreclosure proceedings by assuring the terms of foreclosure according to your mortgage contract have been met. The lender will have to give you appropriate opportunities to respond based on your contract. The lender can only begin foreclosure if the condo has been used to secure the loan; with the vast majority of condo mortgages, this is the case. Finally, the lender will likely contact the homeowner's association in the building where your condo is located to notify the association that a foreclosure will be taking place. This occurs so the HOA is informed of the plans to change ownership of the unit from you to the bank.

Step 4: Auction or Sale

The lender will attempt to recover the money lost by your mortgage default by selling the condo. This can occur at auction or in a private listing. Foreclosure properties are offered for a very low price because the bank wishes to unload the property quickly. Otherwise, the bank will continue to pay high fees to maintain ownership of the unit. Condos in particular may sell for very low prices because there is a good chance there are other units for sale, possibly even bank-owned units, in the same building. For this reason, condo markets are usually some of the hardest hit if a regional foreclosure crisis does occur.

Step 4: Lawsuit to Recover Lost Funds

Once the condo has sold, you are not off the hook. The lender will attempt to collect any loan balance from you. This attempt usually occurs in a lawsuit. If you cannot repay this money, you must declare bankruptcy. If you can repay this money, you will be legally obligated to do so. The only exception happens when the bank forgives the balance. In this case, however, the forgiven amount may be considered income, and you will owe income taxes to the IRS. 

Can a condo be foreclosed on for having unpaid fees?

Whether your condo can be foreclosed on depends on the terms of your mortgage with your lender. Only your lender can foreclose; no other organization has lent you money in exchange for your home as collateral. If you have a home equity loan, it is possible for this lender to foreclose. For example, if you owe fees to your lender, and those unpaid fees are grounds for foreclosure based on your mortgage contract, you may suffer foreclosure if you fail to pay. By contrast, if you owe fees to the homeowner's association, the HOA must apply to place a lien on your property. Only then can they proceed with a foreclosure. 

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