Neighbor won't pay dues; claims she's lien-proof

If you buy home where the deed says it is subject to the recorded CC&R's, there is nothing additional to sign. I think your neighbors are playing a foolish game that will cost them dearly.

Do NOT think they got the concept of a HOA. Some are indeed "volunteer only" to be a member. That would be in the HOA documents and well established amongst the neighbors. Usually involves HOA's that share no common property or amenities. They may just take care of an entry sign or something shared/open access to all.

However, HOA's are mandatory for many. You do NOT sign any documents. They may have a form at closing signing acknowledgement there is a HOA you are buying into but it just an acknowledgement. The property has CC&R's that attached to the property and considered PUBLIC documents. They are also tied to the property title. whether you ever see these docs or not you are still bound to them

They are NOT lien proof for non payment of dues if the HOa is madatory..I say go for the lien and teach a lesson...

If the HOA filed a lien then it's most likely a mandatory HOA.

CC&R's means the Declaration of Covenants, Conditions, and Restrictions. The exact title of the document may vary based on local laws and practice and is usually recorded with the agency that records deeds.

I forgot to mention we had a rule in our HOA at what time we placed a lien. If you did not pay your due within 6 months we would lien. We paid dues monthly. This gave enough time for those who had financial problems to contact us to make arrangements to avoid a lien or those who refused to get the message. Having a set point of placing a lien and not arbritarily out of the sky really does help. ALL members should know this rule. A HOA then can take more proper steps to foreclose as well. Depending on the situation the foreclosure process could be put in place after a year of non-payment.

However, I strongly advise against foreclosing except for special and unique circumstances and longer grace period than a year. A lien keeps the owner grounded to that house until they sell it. A lawsuit doesn't. So forego the lawsuit process and keep with the lien instead. We did a foreclosure on a property behind in dues for several years and special assessment. I just planned on threatening the foreclosure but the owner kept protesting their house away...Lost their house for about 2.5K...Then got sued in court by their renter and lost another 10k...Not to mention the 4 lawyers they owed money to...So keep protesting in your HOA and not paying does NOT pay off. No one supports a non-payer no matter what they reason is they don't pay. That is why each member has voting rights when they are in good standing...A vote and being able to be voted into office goes a LOOOOONG way versus protesting by not paying...

First step, check the title to see if there is anything indicating the property is subject to the CCR's. We bought into what was supposed to be (at least the Developer thought) part of a HOA. Developer didn't register the CCR's, which listed the lots included, until 2002. Unfortunately for him, and the members of the HOA, the houses sold from 2000 to 2002 cannot be included automatically once he sold them and no longer held title. Can't register something against my title unless they had included some condition in my agreement of purchase and sale... which I hadn't. Ergo, despite, my and 13 other homes being physically located within ~110 homes in a 'hoa', we are not part of it, nor are we bound by the ccrs. Makes for the potential of an interesting color (and other features) of houses embedded. Ironic things is that most of the members of the HOA have and continue to have violations that run counter to the CCR's, but the non-members are not the ones that are doing this.

John as far as lien's go, I would say either the lending institution or the title company. As far as the CC&R's go, unless you are in a state that requires specific notification, nobody, its up to the buyer. It's included in one of the myriad of papers they put before you at closing with a simple initial here, sign there but no real explanation of what they mean. That is why all first time buyers should spend a few hundred dollars to have an attorney with them to explain just what they are signing.

Glen.

I was under the imprression that CC&R's are filed with the deed in every state?

Granted some do not show up until the title search arrives at closing, thus some do sign for them really not knowing they did.

Our CC&R's and Bylaws are filed with the deed.

Thanks

Heck.. there are alot of people with this idea in their head.

One homeowner here was arrears to the tune of > $10K when I was on the board the few years back, he is still here, not working, and I guess his dues are higher the the 10K I last saw him owe.

Liens have been filed.. despite him sharing the same idea.. Who cares what your neighbor thinks.
At the end of the day, they are probably wrong and will have some sort of legal action on their heels.

Glen

I do believe people have to take more responsibilty for their decisions and mistakes verus look for an out.

As a BOD Member, I want everything single thing out in the open so we can never be accused of hiding anything in any way shape or form. Makes our life easier. My advice for any association is file the CC&R's and Bylaws with the deed. I say also put them online, available to all. Left up to me, I would even draw up a doc making a listing real estate agent sign for a copy so they could never say I did not know.

Then let the buyer beware.

We looked it up today on the county website. Developer filed all the necessary paperwork declaring that there would be an HOA back in 2002. We moved here in 2006 (neighbors on either side of us moved in within months of us). So, she has no clue what she's talking about. She moved here after those papers were filed, so even though she didn't sign a paper that said, "I do not give XX permission to file a lien", she did so by moving here. Ha.

That said, our developer is our HOA. There are no neighbors on the board, which is a problem we're trying to rectify. The developer has kind of let things slide around here because of the economy. He's out of money and the city is after him for some infractions, so he's really tired of dealing w/ our neighborhood.

We are in the upstate. Unfortuntely, building in this neighborhood has stalled. There were supposed to be over 1100 homes (majority single family, but there are duplexes as well). So far I'd say at most 200 homes are here. We moved here in 2006 and were one of the first families here. Since then 3 of the main builders have stopped building; two went bankrupt. There are a handful of foreclosed homes and several that are rented to less than desirable tenants.

John,

So what happens after the lien is foreclosed?

The property is sold on the courthouse steps, and the first mortgage holder gets their share -- and that may be everything there is to get. If there happens to be something left, the lawyers get their fees. Any second mortgage holder may also be ahead of the HOA. Seldom in this economy will the homeowners association get a dime.

In most cases, HOA will end up losing hundreds (or even thousands) of dollars, and there is a foreclosure sale in the neighborhood bringing down property values.

Any homeowner who understands this can inform all the members of the Association that their money is being wasted on a pyrrhic victory -- foreclosing but getting nothing for it. Most members will question the actions of the board, and most boards will back off.

This is why a homeowner can claim that they are "lien proof."

Lawrence

Candidly I expect/hope us to never foreclose. I know our declarant (still in control) thinks that way. One reason I might stand for BOD election in the turnover is to be sure our new (and probably inexperienced) BOD does not cut its nose off to spite its face and move beyond legal threatening, nasty legal letters, collection agency action, or whatever but stop short of foreclosure.

The law firm we are using is one of the biggest and most experienced with real estate/associations in SC. Even they have said generally a small and single home association like ours is foolish if they get into foreclosures. They only recommend such in multi-unit high rise buildings. They say one reason is what one can see/perceive. One or two units is a high rise can get lost in all that is going on and may not effect the budget that much. A standalone home is like a sore thumb sticking out thus "harder" to hide from view/questions and in a smallish association like ours ($600.00 per year dues, it could have a major drain on the budget often beyond the non paid dues budget drain.

To prevent such "stupidness", I might personally pay a year or two back dues for someone.

That is most certainly true.

Now we have to convince the other homeowners that it is worth it to spend money with lawyers that we will never get back, so that we can keep the authority of the Association in place and thereby discourage future deadbeats.

It's never easy.

From whom will you get lawyers fees back?

If the house is under water, there is no money forthcoming from a foreclosure.

A lien is only a piece of paper until there is a sale with proceeds above the amount of the senior obligations, including a first mortgage, lawyers fees, and any other lien that is older.

In many if not most cases, the Association gets nothing back.

Even if the foreclosed property sells at the sheriff's auction, the HOA is not out of the woods. I have heard that in some areas it takes the banks something like two-and-a-half years to move a foreclosure through the courts. Investors buy a property at an HOA foreclosure auction and then they rent the home out until the bank takes it from them. They pay no HOA assessments and do not worry if the tenants trash the neighborhood.

When the bank finally takes the property back, the HOA has lost months of assessments and has a trashed home in its midst.

As odd as it is, I recall our atty here for our HOA tell us in California they can not do a foreclosure on any homeowner arrear. THey can only file a lein.

Our HOA requires a homeonwer to be arrears in dues > 1800 or 6 months in dues prior to being handed to the atty.

Our collection policy is less than 10 years old.. prior to that they didn't seem to have issues.

A HOA should NEVER EVER buy a house they are foreclosing on. They just have to be offered the first bid option due to legalities. After that anyone can purchase the home and assume any mortgage debt on the home. There are still the right of redemption by the original owner for up to a year in some states. Thus making it a property that is in limbo for that time again. Mind you the new owner can fix it up during that time. However, the former owner trying to get it back must pay for that work as well.

If the HOA forecloses on a house that is underwater, it will usually end up owning the house without explicitly buying it.

No investor is going to purchase a unit only to end up owing the first mortgage holder more than the property is worth. With no one making an offer at the foreclosure auction, the court will award the property to the HOA in exchange for its judgment against the homeowner. The association then becomes the owner of the property by default. But it's a worthless award.

As Larry points out, after the HOA forecloses, the first mortgage lien remains in place. The HOA is not responsible to pay that mortgage (they didn't agree to the terms of the loan), but if the HOA doesn't pay that mortgage, the bank will foreclose their lien and take the property from the HOA. The HOA will have gone through a lot of time and money only to end up with nothing.

If the first mortgage is FHA insured, when the bank forecloses on that first mortgage it is guaranteed to receive the full amount of the loan from HUD, and HUD becomes the owner of the property in exchange. This happens only when the first mortgage is foreclosed -- HUD has nothing to do with foreclosing on an HOA lien with the first mortgage still in place.

A foreclosure forces the sale of the home on which the HOA has a lien. If there are no bidders at the auction other than the HOA, the HOA walks away with title to the property. The HOA is the default bidder if no one else steps up to buy the property. In this case the HOA doesn't put up any cash -- it exchanges its lien for the title to the property through the process of the foreclosure.

What do you think happens when there are no bidders? Do you think that the homeowner simply continues to own the home?

Unless the lien on the first mortgage is ultimately foreclosed, there is no involvement of the first mortgage lender (the bank) or the first mortgage insurer (the HUD through the FHA). The first mortgage will stay in place while the HOA forecloses on its subordinate lien.

Default bidder but not the default purchaser? That doesn't even make sense. A bid is an offer to buy.

This is not as confusing as it is being made out to be.

When an HOA seeks foreclosure on their lien, they are petitioning the court (in a judicial foreclosure) to grant them ownership of the property in exchange for their lien. The HOA explains to the court how the debtor has not held up their end of a contract, and the court validates the claim. The lien is in place so that if the debtor defaults on their obligation, the lien holder gets title to the property. It's just that simple.

In a foreclosure, the HOA (or any lien holder exercising their right of foreclosure) seeks to exchange their lien for title to the property. The HOA (or any lien holder exercising their right of foreclosure) has a real possibility of walking away from a foreclosure hearing with ownership of the property.

If, however, there is an interested third party who is willing to pay off the obligations on the property, then the foreclosure process is diverted. This third party seeks to make a profit by paying off the (relatively smaller) liens and taking title to the more valuable property. The wrinkle for the HOA in this case is that a third party bidder may not be obligated to cover the HOA lien, and the HOA could walk away with nothing. A third party bidder must pay off the first mortgage and possibly any tax lien, maybe any mechanics liens, but probably not a second mortgage or HOA obligation.

Also, any superior lien holder can abridge the HOA's foreclosure process by exercising their rights first. As holders of a senior lien, their rights take precedence and they can override any actions by the HOA or other subordinate lien holder. If the first mortgage is insured by the FHA, HUD may, but is not obligated to, exercise their right of foreclosure before the HOA exercises their rights. In fact, if the homeowner is current on their first mortgage, there is no reason for the first mortgage holder or HUD to get involved. The HOA would follow through on their foreclosure, take ownership of the property with the first mortgage still in place, and then make or not make payments on the first mortgage. If the HOA does not make the payments (as is most likely) then eventually the bank or HUD will foreclose on the HOA.

The details of the process may differ from state-to-state and even from HOA to HOA within a state, but these are the general principles behind a foreclosure.

The details of the process may differ from state-to-state and even from HOA to HOA within a state, but these are the general principles behind a foreclosure.

There in lie the big gottchas and why one should never, ever base their "legal" decisions on a advice other then from an attorney that represents them and has experience in the issues. Even then if one does not like it, get an opinion for another attorney.

The worst advice is from one not qualified to give it. The 2nd worse is free advice.......LOL