HOA forclosure and short sale

Helen

The buyer has to initiate a short sale, not an HOA or a bank. These are very hard to do. The bank(s) have to approve the sale and many times there is a second lien ahead of the HOA lien. Unless you can work with the bank who is doing the new first lien (hopefully) you might have some chance of recovering some of the past due amount. I would never make the new buyer pay any penalties for the previous owner, only the dues itself. You are trying to recoup a couple of thousand dollars, while the bank(s) are trying to collect a few hundred thousand dollars.

Mortgages are between borrowers and lenders.

HOAs are not responsible when an owner fails to honor a personal promise to repay a mortgage obligation.

Not sure if this applies to other states, but here is a section from a final judgment our assn was granted due to foreclosing on a H/O who did not pay the HOA dues:

IF THIS PROPERTY IS SOLD AT PUBLIC AUCTION, THERE MAY BE ADDITIONAL MONEY FROM THE SALE AFTER THE PAYMENT OF PERSONS WHO ARE ENTITLED TO BE PAID FROM THE SALE PROCEEDS PURSUANT TO THIS FINAL JUDGMENT. IF YOU ARE SUBORDINATE LIEN HOLDER CLAIMING A RIGHT TO FUNDS REMAINING AFTER THE SALE, YOU MUST FILE A CLAIM WITH THE CLERK NO LATER THAN SIXTY (60) DAYS AFTER THE SALE. IF YOU FAIL TO FILE A CLAIM, YOU WILL NOT BE ENTITLED TO ANY REMAINING FUNDS. IF YOU ARE THE PROPERTY OWNER, YOU MAY CLAIM THESE FUNDS YOURSELF. YOU ARE NOT REQUIRED TO HAVE A LAWYER OR ANY OTHER REPRESENTATION AND YOU DO NOT HAVE TO ASSIGN YOUR RIGHT TO ANYONE ELSE IN ORDER FOR YOU TO CLAIM ANY MONEY TO WHICH YOU ARE ENTITLED. PLEASE CHECK WITH THE CLERK OF COURT, BROWARD COUNTY, ..... WITHIN TEN (10) DAYS AFTER THE SALE TO SEE IF THERE IS ADDITIONAL MONEY FROM THE FORECLOSURE SALE THAT THE CLERK HAS IN THE REGISTRY OF THE COURT. IF YOU DECIDE TO SELL YOUR HOME OR HIRE SOMEONE TO HELP YOU CLAIM THE ADDITIONAL MONEY, YOU SHOULD READ VERY CAREFULLY ALL PAPERS YOU ARE REQUIRED TO SIGN, ASK SOMEONE ELSE, PREFERABLY AN ATTORNEY WHO IS NOT RELATED TO THE PERSON OFFERING TO HELP YOU. TO MAKE SURE THAT YOU UNDERSTAND WHAT YOU ARE SIGNING AND THAT YOU ARE NOT TRANSFERRING YOUR PROPERTY OR THE EQUITY IN YOUR PROPERTY WITHOUT THE PROPER INFORMATION. IF YOU CANNOT AFFORD TO PAY AN ATTORNEY, YOU MAY CONTACT LEGAL AID SERVICES OF BROWARD COUNTY, INC TO SEE IF YOU QUALIFY FINANCIALLY FOR THEIR SERVICES. IF THEY CANNOT ASSIST YOU, THE MAY BE ABLE TO REFER YOU TO A LOCAL BAR REFERRAL AGENCY OR SUGGEST OTHER OPTIONS. IF YOU CHOOSE TO CONTACT FOR ASSISTANCE, YOU SHOULD DO SO AS SOON AS POSSIBLE AFTER RECEIPT OF THIS NOTICE.

So the way I understand this F/J is as follows. The house will be auctioned off. Since we initiated the foreclosure, we will get the money owed to us. Anybody else, can enter their claim and will eventually get some money, but only in the case that there is some money left after the assn has been paid off.

Not sure if I understood that correctly, but I'm sure that somebody will correct me (and please do so if I was wrong) if my interpretation of this paragraph is incorrect. I don't understand how the assn can get stuck with liens, if the assn is not even the buyer. The owner who is foreclosed on is still in debt with the mortgage company, even though he/she doesn't own the house anymore. So let the mortgage company sue the H/O for the money. Many times people pay their mortgage and not the assn dues, so the assn files the lien and the foreclosure and the mortgage company can't do anything, because the H/O is paying the mortgage. It's a little more complicated if the H/O doesn't pay HOA dues and doesn't pay mortgage.

To all,
I would believe that any one of us that finds we are in a situation that involves foreclosure of property that none of us would enter into an active role without legal representation. We would want our interest protected, what ever that interest is. This would go double if our involvement is because we live in an HOA. I have never seen any documents that condone getting legal advice off a web site. I would not consider a generality of an opinion to consitute legal advice and our BOD is beyond the ball field if they commit resources of the association without representation in each and every circumstances of association interest.

The legal act of foreclosure is by nature referenced as a property under a court order for that specific property.

If you are involved as a person............get a lawyer. If the HOA is involved.............get a lawyer. The mandate to do the latter is stronger than the caution to do the former. IMHO

Richard,
I am impressed.

I expect there is a ton of folks that could use your expertise. Have you thought of setting up a website and offering advice for a fee, or maybe even free.

Okay Been away for a while See lots of activity to my question. Robert, am I correct in understanding that if the hoa forcloses on a property and it goes to sherriffs sale all the liens will be paid in order from the proceeds of the sale and any priority liens ahead of the association will not need to be covered by the association if there is not enough money from the sherriffs sale. I understand the association would get nothing but sometimes you have to eat your losses and move on

That doesn't compute with me ... If somebody pays their mortgage, but not HOA payments and HOA forecloses on owner, then HOA has to carry all the lawyer expenses and the eat the maintenance that has not been paid? That doesn't make sense.

Why would an association then foreclose on a property? The Bank has no claim on the money that the homeowner owes to the association

That's like somebody goes hunting or fishing. Brings home the game, prepares it, cooks it, puts it on the plate, adds some cool drink to it and then somebody comes and pushes you from your chair and eats everything while you are watching them? Sound like a lot of BS to me ... LOL

Please somebody tell me that is not the LAW ... PLEASE!!!!

We had a property here that the association had a lien on. The mortgage company forclosed and had a sherriffs sale for the amount of money that was owed to them. Our HOA lien was completely wiped out and any 2nd mortgage. So "all" liens do not have to be paid in a sherrifs sale. I just don't know if 4th in line HOA can forclose with sherrifs sale without having to pay the liens of 1,2 and 3 Interestingly the "new buyer" was the parent bank of the mortgage company that forclosed So in reality they sold it to themselves The bank has been paying the dues since the sherrifs sale Now they have in on the market but still will not have to pay the our past lien because they wiped it out in the sherrifs sale

The last thing an HOA would want to do in today's market is foreclose on a property. There are ways that an HOA can work with an Real Estate agent when the home is in a short sale situation, where you can maybe re-coup some on the past dues. I would never stick a new buyer with any of the penalties. The offer a buyer makes on a short sale generally is only going to satisfy the 1st lien, but I have seen case where some on the due were3 paid off. Again, communicate, communicate and communicate. Foreclosure in today's market, nobody wins except the lawyers. I have stated the order that liens get paid below.

Folks, I can't stress this enough, this is going to get worst, before it get better, because we are not creating jobs. In many cases, local and state governments are in worst shape than an HOA, so we may see a number of HOA's fail in the next two years.

Remember Robert I am not a Board Member. What would I do? Never allow an HOA where the property is upside down. Before a Notice of Intent/Default is filed I would sit down with a borrower and determine what is causing this situation. Same things as a Banks Home Retention Department would ask. Work on solutions, payment plans, anything for the borrower to continue paying something while they possibly get a loan mod.

I am currently working with two families that are having difficulties and they have continued to pay their HOA dues on my advise. I forgot to tell my Board I was doing this. I would keep the lawyers out of the mix, why waste money. I am sure many communities have individuals like myself that can help. Communication certainly is the key. HOA's need to stop treating this as a business. This is not where people shop, its where families live. Some compassion has to be the order for the day.

John,
I don't know, so I will ask. Suppose the bank or whoever is holding your mortgage, and you are not paying, how are you going to access the members for the Mortgage debt. In fact I doubt you could purchase the property as an HOA.
As I say, I don't know. If you all wanted to buy the property outright, you might get a hell of a deal on it, but to mortgage?????

I sure hope you got a good laewyer.

Everett,
You are talking way out of my league and I thank you for the explanation.

Would you be so kind as to cite the states that allow for this kind of process.

Is this common through out the country now that this foreclosure business is effecting the bottom line of a lot of associations.

Who is the Landlord of these tenents that rent these units? How do you account for the money received tax wise. Who would pay such things a accomodation county taxes, not to mention property taxes.
Do associations have to alter there documents to engage in this enterprize?

I think this should be handled on a separate thread.

Where in the local courts would this be handled? In SC, I believe all foreclosures are handled by The Master in Equity Office.

RobertR1,

EverettC pretty much explained how it works in his reply. We do not pay the mortgage or property tax on the unit we foreclosed on. We do not want to purchase the unit as we are not in the real estate business and there is negative equity making it unsellable anyway. Since we have title to the unit we are entitled to rent it out, the property manager collects the rent and posts it as income. We have no idea when the lender will foreclose on us but we hope they take a long time. We get advice from our law firm on the various options available to us, the board then decides how we want to proceed. Since laws vary by state it is best to contact a local lawyer to get detailed information for your area. We determine which units are best candidates for foreclosure, for example some units are in bad shape so we do not want to foreclose on them since we can't rent them out unless we spend a lot money to fix them up. We are in the process of foreclosing on several more units, it is a time consuming and expensive process but we are hoping to rent them out, recover our legal costs and bring in some much needed income before the lender forecloses on us.

Robert,

I am not sure that I understand your questions. If the HOA becomes the owner of a unit following a foreclosure sale, and then rents the unit out, presumably the landlord tenant laws will apply just as in any other rental situation.

By being the successful bidder at a foreclosure sale that it initiated, the HOA would obtain title to the property, subject to any liens that are prior in right and therefore not wiped out as a result of the HOA's foreclosure sale. The landlord tenant laws, so far as I am aware, do not require the landlord to have unencumbered title (i.e., that the property be mortgage free), or even title of any kind.

Also, I note that it may be possible for the bank to obtain a court order directing that the rentals be paid over to the bank pending their foreclosure, which would defeat the attempt by an HOA to get some rent out of the non-paying unit for the interim period before the bank completes its foreclosure action..

I am not doing anything, I am just newly elected president of my HOA (was VP until a week ago), on the board for last 2 years and for 6 years in the 1980's. I didn't say that I am not in the real estate business (not sure where you got that from), but no, I am not in the real estate business.

But yes, if an HOA chooses to foreclose on its lien and rent the unit out until the bank forecloses, they are (or should be) acting with the expectation that the bank will foreclose on them, sooner or later. During that intervening period of time, the HOA is the owner and can rent out the unit and keep the rental income. Depending how much their legal fees are to bring the foreclosure, the length of time involved for the bank to initiate and complete their foreclosure sale and the rental income to be gained during that period of time, it may or may not be a profitable strategy for an HOA. In any event, it is a risky strategy, but not because the HOA (or the HOA members) will become personally obligated on the mortgage debt. In particular, I was responding to your question, "how are you going to access the members for the Mortgage debt", which suggested that you thought that the HOA or the HOA members would become personally liable for mortgage debt if the HOA foreclosed on a unit that was encumbered by a mortgage, and as others have stated in other responses, in other threads.

Hope that helps.

EverettC,
I apologize Everett, I think you are right and I got the two groups confused or mingled as one. I appreciate your comments and it is enlightening to see how different folks from different experiences form their position. I would assume you would agree that unless there is some kind of moral restraint on both sides of the aisle not much is going to work out. Also not mentioned in this discussion that for the most part HOA's are never directed by the majority. The majority don't care. It is the few willing to step up to the plate that do have some integrity that makes the wheels go round, and the music play. This of course, puts greater pressure on those few to "{do the right thing."

JohnM3,
You mentioned a court appointed trustee, that sounds like a receiver. We are currently in the process of getting several units handed over to a receiver. The receiver is used in a situation where the unit has a paying tenant but the owner is pocketing all of the rent and not paying his HOA fees. We have to go through the same legal process to initiate an HOA foreclosure but we do not actually foreclose. Instead a receiver is apponted by the courts to collect the rent directly from the tenant. The receiver takes a fee out of the rent and forwards the balance to the HOA. The monies are applied to the delinquent balance and legal fees until the account is up to date, then the receiver only forwards the monthy HOA payment to us, the rest is sent to the owner, minus a monthly fee for the receiver. The ironic thing here is that the owner would have pocketed a lot more money if he had paid his monthly HOA fee all along.

StephenL,
The rent we collected on the unit we foreclosed on was first applied to the delinquent HOA balance. The delinquent balance was paid off, now we apply a portion of the rent to pay the current monthly HOA fee on the unit, the remainder of the rent is posted as income. At some point the lender will foreclose on us, it's then up to the lender to sell the unit. Since the account is up to date the lender and new buyer will not have to be concerned with any past due HOA fees.

Stephen,
Ooooooppppps,
I think I found what I was looking for.
DC my last.