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foreclose

Started by BarbaraD6 ā€¢ 11 replies ā€¢ 1551 views

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BarbaraD6 (Florida)
Posts: 347
Posted:

Our association hasn't foreclosed on any units yet. We now have several that our attorney wants us to consider starting foreclosure proceedings.

Has your community done this, how has it worked out for you? Do you rent the property out, sell it,etc?

Barbara
RyanD1 (California)
Posts: 38
Posted:
Barbra:

I just foreclosed on 8 units at one of the larger associations I manage. These homeowners had large balances $8,000+ per unit and were still current on their mortgages. I followed Davis-Sterling which is the governing body for associations in California. I will provide the link below. The first think I did was contact all 8 units lenders and notified them that the association had no intention of making any further payment. Of the eight units, one of the units lenders was willing to do a cash for keys deal. They paid the association $4,000 and handled everything from that point forward. Regarding the other 7 units, we evicted the previous owners and started renting out the units on a month to month basis at a discounted rent. If this occurs, we assume that the association will be recovering approximately 80% of the back dues and money spent to foreclose on the units.

The cost to foreclose per unit was $1,500. We are hoping that we will get 12 months of rent from each unit at $1,000 per month. Hope this helps.

http://www.davis-stirling.com/NonperformingBanks/tabid/2172/Default.aspx
JohnE7 (Florida)
Posts: 13
Posted:
Barbara,

My association has foreclosed on several units. Since the value of each of the units is less than is owed on the mortgage they cannot be sold. We are renting out the units until the lenders foreclose on the association.
It averaged about 10 months for us to get title to each the units.
It cost between $2,500 - $3,000 to foreclose on each unit.
So if you rent out each unit for $1,000 per month, it will take about 3 months of renting just to cover the legal costs. So the break even point is about l3 months from the start of the foreclosure process. The main risk is that if the lender forecloses before the break even point then the association will have lost money on the deal. There is no way to know for sure when the lender is going to complete the foreclosure.
We are not starting any new foreclosures at this point due to the increased risk involved, most of the units in our development have been in lender foreclosure for quite a while now and we feel they may be foreclosed before we can reach the break even point. None of the units the association has foreclosed on have been foreclosed by the lender yet. We have been renting one unit for over a year so we have covered the legal costs and brought in additional money to the association. We have not covered costs on our other units yet as we only recently were issued titles. We are hoping the lenders procrastinate for a long time.

A few other things to keep in mind:
Make sure you inspect the units you are considering for foreclosure, there may be severe damage, missing appliances and mold damage due to air conditioning being turned off. It may not be worthwhile to foreclose on units that will be very costly to repair as this will lengthen the break even point.
The association will be the landlord if you rent out the units which means the association will be responsible to repair any problems the tenants may have such as the refrigerator or air conditioner needing service, pipes leaking, etc.
MaryA1 (Arizona)
Posts: 388
Posted:
John,

I simply do not understand why an assn would want to foreclose on a unit if they cannot recoup the money that is owed them and if there is a chance that the mortgage co will foreclose. There are other steps that can be taken to recoup the delinquency. You say the break-even point is 3 mos,but that is only for recouping attorney fees. There are many other expenses associated with owning rental property and two biggies are property insurance and property taxes not to mention all the headaches of being a landlord. Why would the board want to get into the business of becoming a landlord???
RyanD1 (California)
Posts: 38
Posted:
The Board would want to foreclose so that they can get new homeowners in there as soon as possible paying the HOA Dues.

It is becoming quiet common here for homeowners to make their payments to the lender, but not the HOA. This creates a situation where the balance owed becomes a level that they can never pay off and the only action the Board has is to foreclose on the unit to get a new homeowner in paying the dues.
JohnE7 (Florida)
Posts: 13
Posted:
Mary,
The only reason we foreclose on a unit is to recoup money that is owed to the association and we know that the lender will definitely foreclose on us at some point. There is some risk involved. We have been collecting $1,000 per month rent for about 18 months on one unit, this has more than covered legal fees, the delinquent balance, cost to prepare the unit for rental and insurance costs. There has been no recent activity by the lender on this unit and we hope it stays that way for a long time. The association does not pay the mortgage or the property taxes (this issue was covered in detail by others in other posts). The increase to our existing insurance policy was minimal. We have full time maintenance staff who can repair, paint and clean the units to make them ready for rental at minimal cost. We would not foreclose on a unit that is in bad shape and would be too costly to repair.
As far as being a landlord, our maintenance staff can handle any basic problems. Since our development is only 5 years old it is unlikely that any appliances would need to be replaced. It is unlikely that any repairs would cost more than the monthly rent.
I noticed I made a typo on my post above, the total break even point for us has been 13 (thirteen) months, 10 months to get title to the unit followed by 3 months (maybe 3.5 months at most)of renting the unit to cover ALL of our costs. Note this information is for Palm Beach County, legal costs and length of time required for an association foreclosure may vary in other counties.
Ironically it is in the best interest of the lender not to foreclose on the association too soon since we will fix up and maintain the unit as well as rent it out to pay down the delinquent balance. Eventually the lender will get a unit in good shape, with a good tenant and no delinquent balance. This will make the unit more appealing to a potential future buyer.
JeffP6 (Florida)
Posts: 91
Posted:
No thanks LOL our HOA cant handle beign a landlord too - we like to sit back and wait for the bank to foreclose and then we get our money from them or when it gets bought. We have been using the ability with 720 to demand rent from people that do have tenants but are not paying HOA dues - this is working quite well on most of our homes other than one that we are pursing eviction of the tenants on currently
RichardP13 (California)
Posts: 1,767
Posted:
IMO, if you foreclose on property to repay only your delinquent assessments, you are as guilty as the homeowner who didnā€™t paid their assessments in the first place. In the grand scheme of things, HOA dues are way down the list in priority of liens against a property.

As a landlord, you are now refusing to pay the mortgage, property insurance and property taxes. How does that make you better than the homeowner you foreclosed on? At some point in time the lenders will wise up and/or their situations will change and I wouldnā€™t want to be on the wrong end of barrel when the shooting starts. I think they have more, high powered attorneys than the HOAā€™s have.

The lender is only holding title for the investor who ultimately owns the property. As a landlord myself, the rent I charge includes an amount to cover my mortgage, property tax and insurance, any utilities included in the rent and a reserve for repairs. When the investor wants out, the lender will foreclose and they will want their money. Right now, because of economic conditions, you may feel you have the upper hand, but things have a habit of changing. I wouldnā€™t want to be in your shoes when the tide changes.

My suggestion, get attorneys involved in having HOA dues included in escrow accounts and make them mandatory. That way, if the homeowner is paying their mortgage, you get paid. This will require changes in the way association process transfers. It would change how you collect assessments/dues. Lenders will not pay monthly, but would pay the Associations as they do property taxes and insurances yearly, bi-annually or quarterly. It will require Association to be more responsible than they currently are with the financial affairs of the community and treat it more like the business it is supposed to be.

My two cents
SusanK5 (Utah)
Posts: 30
Posted:
Question...I didn't think that you could collect the back HOA dues from the bank when it forecloses? We have had a few condos foreclosed on and we lost all of the money that was owed to us. It left us trying to find the owner and collect the money from them...which is not easy. Let me know about my original question please.
JeffP6 (Florida)
Posts: 91
Posted:
Quote:
Posted By SusanK5 on 11/11/2010 3:54 PM
Question...I didn't think that you could collect the back HOA dues from the bank when it forecloses? We have had a few condos foreclosed on and we lost all of the money that was owed to us. It left us trying to find the owner and collect the money from them...which is not easy. Let me know about my original question please.

Depends on the state - In Florida if a home is foreclosed on by the bank and there are dues then the bank has to pay back the last 12 months dues or 1% whichever is lower however our attorney recently found case law that says that we an collect on all balances owed - in this case over 100K
MaryA1 (Arizona)
Posts: 388
Posted:
Jeff,

Would it be too much trouble to post the FL law which says the last 10 mos dues can be collected or 1% -- 1% of what? Also, what if the h/o doesn't owe 12 mos of dues? Also, your attorney says case law allows the HOA to collect on all balances owed -- collect from whom? And, are you saying you have a member who owes the assn over 100K???
MaryA1 (Arizona)
Posts: 388
Posted:
Jeff,

I just found the applicable state statute which I've copied below. It reads a little differently than you stated.

-------------------------------------------------------------------------------
718.116(b)The liability of a first mortgagee or its successor or assignees who acquire title to a unit by foreclosure or by deed in lieu of foreclosure for the unpaid assessments that became due before the mortgageeā€™s acquisition of title is limited to the lesser of:

1.The unitā€™s unpaid common expenses and regular periodic assessments which accrued or came due during the 12 months immediately preceding the acquisition of title and for which payment in full has not been received by the association; or

2.One percent of the original mortgage debt. The provisions of this paragraph apply only if the first mortgagee joined the association as a defendant in the foreclosure action. Joinder of the association is not required if, on the date the complaint is filed, the association was dissolved or did not maintain an office or agent for service of process at a location which was known to or reasonably discoverable by the mortgagee.

(c)The person acquiring title shall pay the amount owed to the association within 30 days after transfer of title. Failure to pay the full amount when due shall entitle the association to record a claim of lien against the parcel and proceed in the same manner as provided in this section for the collection of unpaid assessments.

The applicable statute for HOAs is 720.3085(1)(c)

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