Condominium corporations have a responsibility to manage and collect common expenses from unit owners to ensure the financial stability of the community. When owners fall behind on their payments, the corporation has several legal tools at its disposal to recover the outstanding amounts, including the power of sale process.
This blog will walk you through the key steps involved in the power of sale process, helping you understand how it works and what actions to take when arrears remain unpaid.
Understanding the Power of Sale Process in Condo Collections
What is the Power of Sale Process?
The power of sale process is a legal mechanism that allows a condominium corporation (or a shared property) to take possession of a unit when an owner fails to pay their common expenses, and sell the unit to recover the outstanding debt. This process is similar to the actions taken by a mortgage lender when an owner defaults on their mortgage payments.
Before diving into the power of sale, it’s important to note that there are earlier steps in the collections process. These include sending a demand letter, issuing a notice of sale, and allowing a redemption period. However, if no payment is made during this time, the corporation can move forward with the power of sale.
The Process Explained
Step 1: Reviewing the Case
The first step in initiating the power of sale process is to review the file carefully. This is a critical stage, as it allows the corporation to address any potential issues before proceeding. Some questions to ask include: Is the amount owing significant enough to justify the power of sale process? Are there any disputes or concerns related to the case that need to be resolved first? Once these concerns are addressed, the corporation can move forward with the legal proceedings.
Step 2: Sending the Demand Letter
The goal of the demand letter is to avoid further legal action. It provides the unit owner with a final opportunity to make payment. The letter typically gives the owner two weeks to settle the debt. If payment is made, the matter is resolved, and no further steps are necessary. However, if the owner fails to respond or make payment, the next step is the notice of sale under lien.
Step 3: Issuing the Notice of Sale
Once the demand letter has been issued without results, the condominium corporation will issue a notice of sale under lien. This notice must be sent to all registered owners, spouses, and any mortgagee or encumbrancer. The notice provides a 45-day redemption period during which the unit owner can pay the outstanding amounts in full to avoid further action. If payment is made during this period, the lien will be discharged, and no further steps are taken.
However, if no payment is received by the end of the 45 days, the condominium corporation is legally entitled to take vacant possession of the unit.
Step 4: Taking Possession of the Unit
If the owner fails to pay during the redemption period, the next step is to take possession of the unit. Initially, the corporation will send a demand letter asking the owner to vacate the unit. If the owner refuses, the corporation can issue a statement of claim and seek legal action to obtain possession.
Once the claim is filed, the unit owner has 20 days to file a defense. If no defense is filed within the allotted time, the owner may be noted in default, meaning they lose their right to contest the case. If a defense is filed, the process becomes more complicated and may take longer, but the corporation will still ultimately seek possession of the unit.
Step 5: Sheriff’s Involvement and Eviction
If the unit is still occupied after the court order has been obtained, the sheriff is called to enforce the eviction. The sheriff will issue a notice to the owner to vacate, and if the owner refuses, the sheriff will return after a week to remove the owner and change the locks. At this point, the corporation will have full possession of the unit and can move forward with the sale.
Step 6: Sale of the Unit
Once possession is secured, the next step is to sell the unit. The condominium corporation will obtain appraisals to determine the unit’s value and list it for sale. Before listing, the corporation will also have to address any contents in the unit. If the unit is not vacant, they will need to make arrangements to handle the owner’s personal belongings.
Once the sale is complete, the proceeds will be used to cover the costs of the sale, including real estate agent fees, legal fees, and other related expenses. After those costs are covered, the funds will be used to pay off the amounts owing under the condominium lien. If any funds remain after the lien is satisfied, they will be applied to subsequent mortgagees, lien claimants, or creditors. Any remaining money will be returned to the unit owner.
Step 7: Tenant Rent Recovery
In cases where the unit has tenants, the condominium corporation can also pursue rent recovery to help cover the arrears. If lease information is available, the corporation can seek to redirect rent payments to cover the arrears, providing another avenue to recover the debt.
Distribution of Proceeds
After the sale, the proceeds will be used to cover the costs of the sale, such as real estate agent fees, legal fees, and municipal tax liens. Any remaining funds will first be used to pay the amounts owed under the condominium lien, followed by claims from any mortgagees, lien claimants, or execution creditors. If any funds remain, they will be returned to the owner.
Further Resources: Power of Sale in Condos
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Power of Sale Process in Condos: In Conclusion
The power of sale process is a powerful tool for condominium corporations to collect unpaid common expenses. However, it’s not a quick or simple process. The steps involved can be time-consuming and costly, but they are essential to recovering the amounts owed to the corporation. By understanding the process and taking the appropriate steps, condominium corporations can protect their financial interests and ensure the continued health of the community.
If you're managing a condominium or shared property, it's essential to be proactive in handling arrears. Stay informed about the legal options available, and consult with a legal professional to navigate the complexities of the power of sale process effectively.
-Stratastic Inc.
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