Foreclosures

We are a new five-member Board of a HOA in California; all NEW. None of us have previously served on a Board.

I have so many questions but for starters, this one pertains to foreclosures:

There are 45 townhomes in our complex. One unit was foreclosed on; I think it was about a year ago, and is owned by the bank.
It was empty for quite sometime. For the last several months, at least, someone has been living inside the unit.
Of course, the bank has not been paying any monthly association dues.
The Board recently approved foreclosure on the property which is owned by the bank.
Our management company has an attorney who handles everything pertaining to the foreclosure

How involved should the Board be? Should't we prepare an "estoppel"? As far as I know we haven't been asked for anything unless our management company has provided it to the attorney.
What about the "squatters" who have taken up residence in the unit?
What if the people inside cause damage which also damages the next unit attached to it? What are our responsibilities/obligations?
Since we are not the owner (the bank is) can we have these "free loaders" evicted? Should we? How?
They are utilizing the amenities of the complex, paying nothing.
What should we, as a Board, do? Should we notify the bank of these people? Remember, we approved filing foreclosure against the bank!!

THANKS for everyone's help!

Your HOA does NOT own this property. The bank does. They are responsible for the damages to the property NOT the HOA. Your HOA can call the bank and report the situation. It is NOT liable for the damages to that property nor evicting any squatters who may or may not live there. The HOA can tell the bank about the dues and how much is owed. Your HOA may or may not ever see that money. Usually banks wait until the last minute to pay up IF then.

The biggest issue here is the HOA wanting to do a foreclosure on a house already foreclosed on by the bank. There is absolutely NO money to be gained here at all. The bank ALWAYS gets paid first and foremost. Even if your HOA did the foreclosure for back dues, the bank would still end up paid first. The HOA getting the "leftovers" if any.

I would do some more investigating on this property. See if there is an owner. It is found at the tax assessor's office if you know the lot number. That information will be current within a few months of the last transaction/sale.

You all could possibly file a lien on the property. However, still not guaranteed to see any of that money back at this point. Remember when hiring a lawyer it is the WHOLE of the HOA's lawyer NOT individual members. Your PM may recommend an attorney and it be the one they use. However, they are independent from your case. They are your contractors.

The OP stated the property was owned by the bank they suspected. However, there are also people living in the home. So it could be that it is NOT a bank foreclosure and someone bought the home. It's best NOT to assume the house is not owned by new owners nor to assume it is owned by the bank.

I have done a foreclosure. So I know exactly how it works for my state. No use on foreclosing on a foreclosed house by the bank. Just tossing good money after bad. Considering ANY foreclosure done by a HOA or bank is just a "Stop the bleeding" measure. It is NOT a money making one. You can NOT get blood out of a turnip and you can't get back dues from a foreclosure. Been there, done that, it ain't happening.

Best a HOA can hope for are new owners to move in and to start paying their dues. Only in Florida would there be the risk of the new owner's paying the old owner's debt. Otherwise, it's best to start with a clean slate.

My HOA we did was a rare case. I inherited the issue. Over 3 years no payment and did not pay a special assessment risking us not getting separate water meters. The debt was over $2,500. Considering we only collected $50 a month. This was a big debt. They ignored the liens. Tried to make their tenant pay...Oh and they threatened to burn down the clubhouse...

We did not even plan for the foreclosure to go through. It just happened after it was filed. The owner hired several lawyers to fight it but did not pay them. So their lawyers (up to 4 I heard) quit on them. They lost their home for $3000. The tenant sued them and won another $10K.

The house stayed empty for awhile. It was extremely damaged inside and finally a tax lien took it out for new owners to pick up. I was gone by the time the house finally became a viable member again. We just got a check fo $2500 because someone did buy it at auction but failed to keep the home. However, we lost close to a 1K in legal fees and another few years of dues collections.

It was worth the effort for us but not for everyone. Would not recommend it to most people. It was not a money maker and just got rid of bad members.

Again you take things too literal. I was the one that hired the lawyer and started the foreclosure proceedings. An individual can't do a foreclosure. However, I was the one the took the steps and was involved in the ENTIRE process except when the lawyer his job of filing the paperwork and court stuff. I was there when it got auctioned off at the steps and even found a buyer. So I know the process as much as anyone possibly can NOT being a lawyer.

It is NOT worth spending ALL your members money on a foreclosure. It was foreclosed on for a reason. No money!!! Plus banks do NOT have "deep pockets" as you state. Their money comes from their membership as well. I've seen enough banks fail to know they do not have the deep pockets you think they do. They may keep the money in a vault but does not mean it is their money. Although they do tend to use it to invest to get money back for their customers.

Again a foreclosure is NOT worth the effort for an HOA. It is just a "stop the bleeding" measure and left at that. Otherwise your just investing your members money into something too expensive for them to afford. They all still have to pay the dues on that house to the HOA. Maintenance, insurance, taxes, dues, and general expenses of home ownership is NOT cheap. Can your HOA put those costs into your budget? I think not.

Renting a foreclosure is ILLEGAL if the HOA does NOT own that foreclosed property. So if they did rent it out... ALL the rent collected could go to the bank who truly owns the property. So no profit there.

If your HOA does own the home, then it has to make possible house payments if there still is a mortgage. You don't always buy the home for the foreclosed auction price. You get it for that auction price and whatever is still owed on the property. Now your HOA has to also afford the HOA dues, maintenance,insurance, taxes, and associated costs. Plus your HOA may have to claim expenses on their Taxes raising tax liabilities.

So no it is not worth owning a foreclosed property or renting it for a HOA. Unless your HOA is willing to pay a few hundred to a few thousand a month on one...

Melissa, please stop talking about foreclosures. Your misinformation clearly shows you don't know what you're talking about.

Wait you mean I can simply find a house in foreclosure and rent it out? That is legal? If that is not, then why could a HOA do it?

Let me do some math. An owner owes the HOA 10K. The HOA forecloses on the owner. They pay 1K in legal fees. Total cost of foreclosure is 11K. The profit for a HOA is 0. That stops the bleeding. 10K was a HOLE. The 1K was paid out to fill it. Hopefully, new owners pick up the dues from when they get it. Clean slate.

Now your saying that the HOA should buy the home and rent it out. Well, it would seem the HOA would immediately be in the hole for 20K and $1. The dollar is the starting bid. So the HOA would already have a 20K debt load on the home. How much rent you got to charge and for how long before the money is made back?

So let us say that there is nothing owed to the bank by the owner. Most likely not a real world scenerio as no one would let a HOA take a paid for house for that much money. Let us play that game anyways. The HOA would still need to pay for home insurance, taxes, repairs, utilities while empty, and the HOA dues. I have owned rental property and there are always repairs and damages to pay. Plus there are "Tenant rights" to deal with as can not just kick someone out without paying court costs. They can stop paying rent up to a year. Plus tenants are not subject to following the HOA rules unless written in the rental agreement.

HOA are non profit. They must spend as much as they collect on the expenses they have. A profit on rental or sale would be subject to taxes. An other cost to factor in.

So let us take this scenerio here. 20K owed plus dues, insurance, taxes, repairs, and other costs. That could be about 1K a month out of the budget. A cost that has to be covered regardless if it is rented or not. Does that sound like a profit yet?

A court can only make you whole. With that being said, only profit that can be made is only after a court ruling. However, after that you are paying out money to make money. What point is that worth it?

If you do not have the common sense the good Lord gave you...It should be understood that ALL advice here is dependent on where you live. ALWAYS realize this is FREE advice and there is NEVER one size fits all but pretty dang close to you do reasearch....

It all comes down to numbers, not talk. For arguments sake I will use Melissa's $10k in back dues.

One Time Expenses:
Back dues $10k
Legal fees to finish foreclosure $1k
Paint / Repairs $200
Advertise house on craigslist $0
TOTAL - $11,200

Income:
Single family house $2500 month - 25% in taxes = $1875 month

Monthly Expenses
Property tax (1.5% on 250,000 home) $313 month
Insurance $0
Repairs $0
Mortgage $0
Utilities $0 (paid by tenant)

$1875 month - $313 taxes = $1562 month

Time to break even 7 months.

Most foreclosures are taking years. So lets say the bank doesn't foreclose for 2 years. After the break even point of 7 months, the HOA will collect rent for another 17 months at $1562 month which equals $26,554 profit for the HOA instead of a loss of the original $10k.

You missed the additional 10K. Remember the HOA is already OUT 10K. Buying the house for an ADDITIONAL 10K + 1 dollar at the auction. That is still 20K + 1 dollar. I have never ever seen a home in foreclosure that was in "good" condition for a $200 paint job. Most are missing appliance, need new carpeting, water damaged, and would never pass inspection. I have flipped foreclosed houses. The house I got now was one that was fixed up prior to me buying. I still had to invest in another 30K in this house. It was "liveable" if you did not mind not having air/heat, flooring, or good windows.

Reality is a foreclosed house has been abandoned. It is most likely going to need thousands of dollars of work done to it. I've never even painted my own house for $200 inside/out. Neither has Habitat for Humanity who I volunteer for. There are still sales costs associated with selling a house even on craig's list. Plus who is going to handle the deal? The board or president or a HOA member? Don't you think member would question that non-stop and think it was "crooked" that the HOA foreclosed on a house for profit?

Your methodology would have people believing HOA's foreclose on houses for selfish reason and profit. The reality is that HOA's foreclose on property for UNPAID debt. Foreclosing so the HOA can make a profit just perpetuates those nasty HOA urban legends everyone spouts off about in the media. Further damaging the intent of HOA living and what it means.

Not quite. The court gets nothing but processing costs. A court ONLY makes you WHOLE. The HOA is out 10K plus legal costs. That is what the owner is to pay to stop the foreclosure. The place goes up for auction by the court to collect the outstanding debt. The bid goes out at the amount owed. First bid to the HOA and then whoever wants to bid.

Keep in mind this is for a HOA foreclosure and NOT a bank. The HOA basically does the job of the bank when it forecloses. The bank is always paid FIRST and foremost. The HOA just gets the leftovers. So even if the bid grows, the bank gets what it is owed.

So the court allows the HOA to put the property up for bid to collect their debts. Paying the bid price to win the property satisfies that debt but it is paying back itself. Out the money twice. If the bank does not get the money first.