HOA Refuses to Foreclose on Delinquint HOA Dues

Started by RobertC20 • 16 replies • 2472 views

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RobertC20 (California)
Posts: 4

Posted:

A few years ago I invested (along with several others) in a construction loan to build a home within a HOA. We got a Deed of Trust from the builder. When the housing crash hit, the builder went belly-up and gave the investors a Deed in Lieu of Foreclosure. We are now the owners. The home remains unfinished and the HOA dues and real estate taxes are not being paid because the other investors (who are now my owner-partners) don't want to put any more money into the project.

I need to get this project off the dime. I would like the HOA to foreclose so that I can purchase the property outright, and then pay the taxes, complete the construction, and sell the home. However, the HOA has been advised by their attorney that they should not spend the money to foreclose because the outstanding loan is more than the house is worth, and they will get no money. Seems to me that there IS NO LOAN outstanding because the lenders on that loan are now the owners of the property, and their interests have merged. Also, if I purchase the home at the HOA foreclosure sale (if I can convince them to hold one), then what will I owe to the other partners?

Can anybody shed some light on this mess?

SteveM9 (Massachusetts)
Posts: 3,699

Posted:

Your situation is much too complicated to discuss on an internet forum. You need advice from a real estate lawyer.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

There is a loan out on that property. The lawyer is giving the HOA the proper advice as they would be doing the bank's work for them and NOT getting any money from the deal. The bank ALWAYS gets paid first. Everyone else gets the leftovers.

My suggestion is to call the bank that has the mortgage. Talk to them about working a deal on the property to purchase it from them. You may have to wait for them to do their own foreclosure process but be first in line. You may even see if a "short sale" situation can be worked out between all involved.

I'd suggest getting a realtor involved who can guide you to the correct resources. They should be able to help you get the records of previous sales and other information you may need to finish the transaction.

Former HOA President

BruceF1 (Connecticut)
Posts: 2,535

Posted:

Melissa,

"The bank ALWAYS gets paid first"

Not quite. Usually the real estate taxes get paid first. Then the bank. That's why they set up escrow accounts for taxes.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

When you do a HOA foreclosure...it states very clearly that the bank gets their money first. That is why a HOA doing a foreclosure is doing the work of the bank. It is NOT a money making situation at all. It just stops the bleeding....

Former HOA President

RobertC20 (California)
Posts: 4

Posted:

I guess my initial post was not clear. There IS NO BANK involved. I am one of the investors who made the construction loan, and it is now the investors who are the owners after the borrower-builder granted us a deed in lieu. Seems to me that the HOA lien is now first in line. Am I wrong?

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Why don't you go and try to pay off that HOA lien? If it seems to be the only obstacle in the way. Maybe that will lead you down the path of ownership. The lien has to be paid off before it can be sold or maybe developed anyways.

Former HOA President

RobertC20 (California)
Posts: 4

Posted:

I could certainly pay the HOA dues and RE taxes current, and pay for the construction completion myself (remember, the partners have no interest in kicking in more money). However, I'd still have partners whose percentage interest is undiminished, even though I put up all of the additional money to make the property saleable. I'd rather have the HOA foreclose their lien so I can purchase the property at the lien sale and be rid of the deadbeat partners.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Are you a member of the HOA? Who is listed on the deed as the owner out of all the partners? I would assume the HOA member is the one listed there. Wanted to clear this up as I re-read your post.

Did you or any of your partners take out a loan to purchase the property or was it full cash payment only? This could explain the lawyers advice. I am unclear how the transaction took place. You and 2 other people bought a lot from the now defunct builder?

Did the builder turnover the HOA to the owners? Not clear on that either. This would change how things are handled.

Think your best bet may be to buy out your other partners and pay off the lien. Then wouldn't have to worry about the foreclosure process. You would own the property.

Former HOA President

RobertC20 (California)
Posts: 4

Posted:

Melissa - thanks for the reply. In response to your questions, no bank was ever involved. The investors (including me) put up the money (in the form of a loan secured by a first trust deed) for the builder to construct a residence. The investors were to have been repaid when the builder completed and sold the residence. The builder failed and could not repay the loan, so he deeded the (incompleted) property to the investors. The investors have now been the owners for a couple of years. The property remains unfinished and the HOA dues and real estate taxes remain unpaid because the other investors are not willing to put any more money into the project, and I am not willing to take on their share of the obligations. I have tried to buy out their interest, but they are unwilling to accept my realistic offer because they "hope" (dream) that the property will sell for more than I have offered. I want the HOA to foreclose on their lien so I can own the property outright and be rid of these "partners" who are frustrating my attempt to move forward.

SteveM9 (Massachusetts)
Posts: 3,699

Posted:

Quote:

I want the HOA to foreclose on their lien so I can own the property outright and be rid of these "partners" who are frustrating my attempt to move forward.

Talk to a real estate lawyer and tell him your plan. He will help you make it happen.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Seems to me if your not paying the real estate taxes, they will foreclose on you soon enough. The bad news is I suspect this may all end up in a courtroom somewhere with you and your partners. Seems you all aren't doing a good job of protecting yourselves from outside forces. You need to make them understand the danger you all in if action isn't taken soon. Your credit is going to take a HUGE hit with a foreclosure or tax assessor. Ya need to sit down and realize the situation your in and end it now.

Former HOA President

SteveM9 (Massachusetts)
Posts: 3,699

Posted:

Quote:

Your credit is going to take a HUGE hit with a foreclosure or tax assessor.

Since when do tax assessors report to the 3 credit bureaus? I've never heard of that.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Why wouldn't it reflect on your credit for back taxes? When they decide to collect on your back taxes owed, it's not going to be pretty. A record of court actions will show up eventually. I wouldn't take the risk. You may find yourself having issues applying for more credit or credit cards if you have a foreclosure on record. Which if you force the HOA to foreclose, will count as a history of foreclosure. Plus trying to apply for a new home loan may be effected as well. It's getting tougher out there with approval for loans...This may show up. I'd suggest getting a copy of your credit report and check. It's free once a year.

Former HOA President

SteveM9 (Massachusetts)
Posts: 3,699

Posted:

A foreclosure is completely different from a tax lien. Stop giving bad advice.

AnthonyD11 (Colorado)
Posts: 13

Posted:

I would check with a business attorney to see what obligation you have the other partners. A good attorney will be able to tell you what your options are.

BradP (Kansas)
Posts: 2,640

Posted:

you need an attorney for this one...way over my head, I haven't stayed at a holiday inn lately so won't try to play lawyer

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