Often the association’s decision to foreclose is dependant on whether the association can collect what the member owes the association. This emphasizes the estimated amount of equity in the property. Equity is the difference between what is owed and the property value.

The title company can issue a certificate with a fairly accurate determination of all creditors which have a recorded interest in the property. However, what happens to an association if a surprise surfaces? Government clerks and title companies are not perfect. If a Deed of Trust is not recorded properly, an association may decide to foreclose and later find out that it owns a property subject to an unexpected First Deed of Trust or Federal Tax Lien. This risk is minimized if a guarantee is purchased from a title company.

Title guarantee is also important when determining which creditors need to be notified of the foreclosure. Generally, junior creditors need to be served notice of the judicial foreclosure since their interest is substantially impacted. The subsequent discovery of an omitted creditor will delay the foreclosure to allow the omitted junior creditor a chance to exercise its redemption rights.

Early in the decision making stage, an association may only need a title certificate or ownership and encumbrance report or “O&E”. These provide quick and cheap looks at what is recorded against the property. However, certificates and O&Es do not provide any insurance.

Once a foreclosure is authorized, it is recommended that an association purchase a mortgage or foreclosure guarantee policy. These policies usually limit the amount of coverage to an amount stated in the Schedule A of the policy. Since the amount owed on an assessment lien is rarely over $10,000.00 a mortgage or foreclosure guarantees are usually sufficient. An association can purchase greater coverage by requesting a litigation guarantee. Greater coverage also costs more. Check with a title company if your association demands a more thorough product.