Foreclosures... We have exhausted all other options. Need advice.

Our association has an extremely high delinquency rate. We've tried working with people with virtually no success. We've lowered dues after the economy tanked and delinquencies actually went up. We've offered payment plans for outstanding balances and people still just snub the association. Liens are in place (for years now) on these properties. Those not paying are actively encouraging others that do pay to stop paying, and some people that consistently paid for years have also stopped. We even have investors with multiple properties occupied by renters refusing to pay.

I can see no other option except foreclosures.

Our attorney is slow to respond so I need some advice here. There are properties with no outstanding mortgage or other senior liens, and I don't foresee a problem with foreclosing on these.

My concern is the properties that still have outstanding mortgages where the balance owed is much greater than the value of the property. At a public auction after foreclosure, what buyer would want to bid on such a property? From what I understand, the mortgage is still there isn't it? Thus leaving us, the association, as the only bidder.

If we foreclose on one of these homes and then end up being the only bidder, from what I understand, we then own the property and are then on the hook for the remainder of the mortgage. Is this correct or am I missing something?

When I mentioned foreclosure, my questions and concerns were only for the case when we, the association, forecloses and not a bank. Sorry I should have been clearer.

Following bank foreclosure, our attorney has advised us that the bank is not liable for the delinquent owner dues, the bank foreclosure extinguishes our lien on the property, and we have to pursue the defaulting owner another way. So we have those cases covered. Just need advice on when it us the association doing the foreclosure.

We are in Washington state so we do not have super lien status unfortunately.

I cannot see foreclosure followed by renting as an option for some properties without opening the association up to the possibility of even greater financial loss.

Here is an example of what I am talking about. One homeowner's original mortgage was for $185,000. This was the sale price in 2006. The home is currently worth about $120,000.

The owner has faced bank foreclosure several times and always negotiated new terms with their bank. The latest terms after a mortgage modification agreement (from documents available on our local county website) shows that after all deferments, adjustments, etc, the new principal balance is a whopping $245,000.

Again the home is only worth around $120,000.

Should our HoA foreclose on the owner, we are not going to be able to sell the property for anywhere near that $245,000 amount needed to pay off the mortgage.

Should we instead decide to retain ownership of the property and to rent it out (as some have suggested) what would we have to charge for rent? An amortization calculator shows we would have to rent it for close to $1,400 just to cover the monthly mortgage payments. That doesn't include any sort of insurance or maintenance costs for the HoA acting as a landlord.

Comparable homes are renting for around $700 to $1,000 a month in our area with many rental properties still vacant. Should we find ourselves unable to find a renter, the local water district charges $800 annually whether the property is occupied or not, which we will also be on the hook for. We live in a rural area and many people are having to move closer to the city due to the economy.

See our dilemma? What can we do about properties such as this?

Exactly. That is why foreclosure is not a "one size fits all" situation. I do have some questions about how it is so successful for the other poster. My gut feel there is something off there even if they are successfully collecting rent and all. Not sure if they aren't really renting out foreclosed properties while waiting for the bank to foreclose. Which is illegal to do. Plus they will have to pay back all the rent they collected to the bank if the bank finds out about that situation.

Really it depends on how much money your HOA has in it's budget and if it can afford to take this expensive hit. Ours was not. So we threatened foreclosure as a final step. Keep in mind a foreclosure STOPS as soon as the debt is paid. So don't assume if you go through with the foreclosure process the owner won't pay up before the auction. Sometimes getting the actual paperwork will make someone act.

What I advise in your situation is that go through with the foreclosure, but have someone in the wings to outbid the HOA. The auction information is PUBLIC and thus anyone can bid on the property. It is published in the newspaper for atleast 3 times in the legal section of the classifieds. So even if the HOA has one of it's members bid on the house, it is still PUBLIC information and NOT insider information. Some people may think that is wrong but legally nothing is wrong if you happen to see a house in the HOA in foreclosure and show up for the public auction to buy it.

Good luck. It's not easy but putting in a proper policy should help.

Melissa, it is not illegal to rent the house when we do a foreclosure on our lien. It is done all the time by the thousands of HOA's in Florida that have been hit hard by the real estate bubble. Who are the folks who we rent to? Our properties are more desirable than those outside our gates because they can have access to our amenities and the folks can live inside our pretty little neighborhood. In Florida, the bank is only responsible for 1 year of back dues after the bank foreclosure is completed, so for these houses that owe 4 or 5 years or longer of dues, this option is a fiscally sound option for us. I am not sure what the rules are in your state, but in Florida, we can foreclose on our lien but the bank still is the superior lien holder and once their bank foreclosure is complete, they will get the house back. Florida law also says the bank cannot evict a tenant with a legal lease in place. Our leases are for 1 year, and then month to month after that. The renters are told that the bank will eventually get the house. Because the banks only have to pay 1 year of dues, they are in no hurry to complete their own foreclosures because once they do, they are responsible for dues thereafter. This year, our legislators voted in a new statute that will allow us to file a 'show cause' motion to make the banks move faster.

Thank you, Allison! Some posters on this site tend to make statements as fact, when in a lot of cases, they just don't know!

Our Association has also foreclosed on one of our liens and rented out the property until the mortgage company foreclosed and took title. It is not illegal and the Association did not owe the mortgage company one red cent.

Florida does have some very different HOA's than most states. What is legal there is not necessarily legal anywhere else. Like most HOA's the new owner's are not responsible for the previous owners debts. However, in Florida these can be collected. Which another option for this OP.

How can one rent out a house they don't own is my overall question? Seems if the owner is the bank, once they foreclose, they will be looking for their money back...

Another quick question.

How often do you update your liens with the county?

Foreclosures do work under the right circumstances and application. They are a stop the bleeding method in order to get new owners/members in to start paying their fair share. No more supporting those who don't contribute.

You know I could not put my finger on what was a bit unsettling with the successful foreclosure and rental of the unit. Something just seemed off. However, I remembered we have seen other posters post similar information and experience. Then it dawned on me. The Poster had stated they foreclosed on the LIEN. They did NOT foreclose on the HOUSE. Meaning they do not hold title to the home. The bank still does. Which in today's terms could mean a 2 - 3 years for them to finish that process.

Well then it does make practical sense that while your waiting on the home to foreclose by the bank, why not rent it out? The HOA collects the rent, pays association dues, insurance, and keeps the property in good working order. A win-win situation. Plus they will make their money back with the rent collected. WOW! A great deal if you can work it... This is great and wonderful...

However, there are the questionable legalness of this. The HOA does NOT own the home. They have no title to the property. Can you rent a home you have no title too? That is the question. The HOA only foreclosed on it's debt that was owed to it. That debt was not the home value/mortgage. It was what was owed to the HOA. The bank is still getting paid first and foremost in any foreclosure action.

Which brings me to the next problem... When the bank finally finishes up the foreclosure on the home... What do you think the bank is going to do when they find the home with tenants? Tenants they don't have a rental agreement with? The HOA is going to wash their hands and say "That is the bank's problem to evict the tenants". Your HOA may have a 6 month lease they have to honor. The tenant's have rights too. In Florida, the only state I know of, allows the renter to pay the dues to prevent a foreclosure. However, that isn't the issue as dues are up to date. That does not help the tenant to stay in the home and be illegally evicted. Which opens the HOA to a lawsuit by the renter. Which they will win on many levels.

My suggestion is to look into "Tenants rights" laws in your state. A renter can stay up to a year in a home without paying rent in some states. You can't evict them during that time. Did the HOA write into the rental agreement the renter to obey the HOA rules or use a OTS form? That will make it harder for them to evict the tenant if they didn't. When the bank takes over, did you warn the tenant that the bank would evict them? Did you factor in the bank may ask for all the money you all collected on their behalf since they owned the home? Are you all paying the taxes to the home?

What sounds like a sweet deal and a great option.... May just need a bit more digging into to get the whole story. The home I foreclosed on, the renter sued the owners. The renter won. They had a rent to own agreement the owners did not honor and tried to force them to pay the foreclosure amount owed. Considering your HOA is the "owner" of the home to the renter... I smell lawsuit if evicted... Just sayin...

Steve is right. The lien is placed against the property and when the Association forecloses on the lien, they are foreclosing on the property. The property goes to auction and if there are no bidders (the Association doesn't bid by the way), the property is awarded to the Association and the Certificate of Title is issued in the Association's name, hence the legal right to rent it out.

When the bank/mortgage company forecloses on their lien, the property again goes to auction and the same scenario exists. The bank/mortgage company then takes title to the property and has the legal right to allow the tenants to stay or they can evict.

This is exactly how it took place for our Association. The tenants chose to move.

Foreclosures, liens, lawsuits and rentals – oh, my! As you’ve seen, there is no magic bullet to resolve delinquencies. Our association is in the same situation as yours and we’ve tried everything, up to foreclosure. Foreclosures are the nuclear option because more often than not, the Association still ends up writing off a lot of money. That’s why I agree with Melissa that the prime objective is usually to get the deadbeat out of the house so a new owner can come in and start paying fees.

I’d love for our association to foreclose and then rent the house to get some of our money back before the bank swoops in, but then you have to consider other costs related to land lording, such as paying property taxes and getting more insurance - we’re a townhouse community and our master policy only covers the building structure, so we’d need something else for the interior while the renter would be required to get renter’s insurance. Of course, none of this is free and money’s already tight, thanks to the delinquencies.

Since the banks clearly aren’t interested in the Association (although we clean the roof gutters and mow the lawn so the unit looks halfway respectable), we’re looking at persuading the bank to give up its interest or accept a deed in lieu of foreclosure and start paying the damn fees.

In one case, the bank HAS given up its interest, but the unit’s interior is so messed up, whoever gets it will have to gut it and start over. For that house, we’re looking for a realtor who specializes in distressed properties to see if he/she can find a buyer. We know the house will sell for next to nothing, but we have to start somewhere because it’s destroying the property values of the adjoining units.

In another case, our attorney is building a case to go after the bank in court and demand that they foreclose or the court should consider their interest abandoned – we’ve already foreclosed on the unit. This house is in slightly better shape than the first (the owner’s family {she died before the foreclosure was completed} took the furnace and a toilet on their way out}) and one board member has mentioned buying it himself if we can get the title free and clear.

I don’t want us to spend any more money than necessary after the Association does a foreclosure and who knows if/when the county will file its own lien for unpaid property taxes (in which case, everyone will lose), so the sooner we can get a buyer to recoup some of our losses the better.

(Yes, I know there may be some tax implications since we’re chartered as a non-profit corporation and our property manager is arranging a meeting with our accountant to go over the pros and cons).

Bottom line, you need some sort of plan for the houses with mortgages on them – if your attorney is slow to respond, you may need to think about hiring another one. In fact, that’s what we had to do – attorney #1 is closing out the old cases and while attorney #2 has the same challenges, we’ve found he’s a lot more effective at keeping the cases moving. Be prepared to be flexible – some houses may be trickier to dispose of than the others. Good luck!

If A Unit Owner Is Late In Their Assessment Payments You Can And Should Request Payment From The First Mortgagee Bank.

If you have purchased a condominium or property in an HOA, one of the documents you may be required to sign in connection with your loan is a “Condominium Rider or a Planned Unit Development (PUD) Rider.” This rider is an attachment to the document recorded in the land records to secure the note given by the lender for your purchase. In most states including Florida, it’s called the Mortgage.

One of the most important items contained in the Condominium Rider/PUD Rider is the information regarding the maintenance fees for that particular community association. It is very important to the lenders that these fees are paid because they have an interest in the condominium unit or HOA property. It is especially important to them if the unit has equity, because the community association has the right to foreclose on the title for non-payment of maintenance fees.

In the Condominium Rider/PUD Rider, you agree to conform to the condominium or HOA rules, very significantly important is paying all dues and assessments that are charged by the community association. If you do not pay these dues and assessments, the lender may pay them, and any amounts that it pays on your behalf will be tacked on to the loan amount to be paid back by you, with interest.

Here is a direct quote from one such rider:

“If Borrower does not pay condominium dues and assessments when due, then Lender may pay them. Any amounts disbursed by Lender under this paragraph F shall become additional debt of Borrower secured by the Security Instrument. Unless Borrower and Lender agree to other terms of payment, these amounts shall bear interest from the date of disbursement at the Note rate and shall be payable, with interest, upon notice from Lender to Borrower requesting payment.”

All of this is important, because when a unit owner becomes delinquent it is imperative for the association to pick a recovery solution that will seek to recover and bring in these funds from all possible sources. Community Association attorneys will typically send a notice of intent to file a lien, file the lien, and then they may or not foreclose on the unit. That is a “legal process” that is not necessarily “collections centric.” An effective collections solution would seek to recover these amounts from all parties who are responsible or may be willing to accept said responsibility, and in the case of the Condo/PUD Riders, the banks have provided a path for associations to collect their maintenance fees directly from them. That is why community associations should consider engaging a collection agency over a community association attorney for their collection issues. There are many paths to take in order to recover delinquent assessment fees and the best course of action is to hire a specialist to take on this task.

Penney,

Where in Washington are you located?

Keep in mind that you will still have the deed restrictions, whatever they are.

You will just get out from under having to fund what should have been the towns responsibility in the first place.

Just FYI our HOA has collected large sums from 3 lenders. Persistence and good collection experience. Two were National Banks.

@MikeR15

Previous Boards and other members have already approached the county about this. The county will not take over the roads without our HoA first upgrading the roads to county standards. Last quote for this project was estimated at over $1.2 million and that was over 10 years ago. Also the other obstacle from the county explained is that there would have to a 100% consensus of every member willingly deeding over to the county a portion of their property to the road center lines. We have people here that are going to fight it so that alone is a show stopper.

Wow, that is awful! What a terrible situation to be in!

In your situation, the homeowners are absolutely required to pay the maintainence, reserve ect.

It would be a slam dunk in court.

I wonder why they are refusing?

Is everyone underwater there, so there is no equity to preserve or protect from liens?

@Mike

Yes many are underwater. Some state they are unemployed. Some state they never bought into an HoA and it wasn't in their contract. Some don't want to pay since we no longer have any recreational amenities. It runs the gamut.

We don't even have any paid office personnel anymore, just to contain costs. Board members have taken on all office functions that the former paid office personnel used to do. It is literally a second job where we receive no compensation whatsoever. Only grief from people. Prior Board were spending every dime that came in leaving nothing in reserves. We've brought spending down from $100,000+ annually from prior Boards down to $30,000 annually on ours and people still don't get it. That is a a 70% reduction in annual spending. We actually brought the road fund up from $10,000 to over $85,000 currently in just 3 years. Still over 30% of the community refuse to pay anything at all.

I keep telling people, we still have to maintain these private roads. We live in a mountain valley where snow plowing sometimes costs $5k-$10k during bad winters. We've been lucky the last few. One year we had 5+ feet of snow in a couple of days and the snow-plowers couldn't even keep up. And some people still want the HoA to fold! It is simply... beyond... belief...

If this keeps up, I have no choice but to sell because I can't afford to get stuck for weeks in bad winter and unable to go to work by being landlocked in by a bad snow storm. A large percentage are simply not rational when it comes to this issue. Many simply want others to pay their way on this.

One new Canadian buyer with 10+ rentals all over the county is even refusing to pay and going around stating that his other properties two blocks up get plowed by the county and that the county will take over snow plowing when the HoA folds. The county has no obligation to do so.

All this grinding and gnashing of teeth by members over a paltry $200 annual dues billed bi-annually. We even offer them monthly payment plan if they need to which amounts to just under $17 a month. $17 a month...

Some of these people are beyond reasoning with.

If you would look at the PUD or Condo Rider you will notice that the bank is not obligated to pay but can make the payments and add that amount on to the loan. This tactic is gaining in popularity because as prices rise units are coming out from underwater and have equity in them. The banks want to protect their equity and will make maintenance payments if they see the unit is in a positive equity position. Also, if the unit does have equity then one would think that the unit owner would be more motivated to start paying or the association would be motivated to foreclose on its own lien. With equity in the unit once the association forecloses on the lien they have a second option to renting the unit and that is to actually list and sell the unit. As economic conditions improve so too will the cash flow for associations.

Penny,

It sounds like your choices for action are dire.

You can be like Missy and hire a lawyer that "races to the courthouse" to forclose on your neighbors.

(is his name Tankel by any chance Missy?)

Kind of like that major in Vietnam who famously said: "We had to destroy the village in order to save it"

Or you can do as you said, put the home up for sale and beat feet out of there.

A professor named Evan McKensie has written a couple of books predicting exactly your situation with these HOA things...

they are a bad idea and going bankrupt in droves.

Collections for Community Associations… Making A Right Decision.

Things have changed in the last two years, and for the most part the news is good for Condos and HOAs. Nationally prices have begun to rise, banks are finally coming for their collateral, and community associations are welcoming new good paying owners into their developments and buildings. On the other hand, associations are still not out of the woods yet because there is still a lot of money on the books that has yet to be collected. Millions if not Billions of dollars are still owed for delinquent maintenance fees and the question remains; How can that money be recovered in a manner that the cost of the recovery does not exceed the recovery itself?

Who should boards of directors turn to? Should they continue to rely upon their community association attorneys to try and recover from delinquent owners and defend their associations from the banks when they come to foreclose? Or should they bring this highly complicated problem to specialists whose only business is to recover delinquent maintenance fees from delinquent owners and first mortgage lenders?

The answer is not as obvious as it may seem as there are qualitative issues involved here that need to be addressed before a decision can be made. The all too easy solution is to run to an attorney for help. Since the days of Ancient Rome, people in trouble have been directed by the “Attorney Guilds” to bring their problems to them for resolution. Despite Shakespeare’s admonition in Henry VI to “kill all the lawyers” our society has a very dependent relationship with that particular vocation and in any civilized society it is only proper. In situations where scholarly reviews of the law are necessary there can be no other solution, but for collecting debt for community associations you do not need a “Bar Card.” There is no question that certain aspects of the collection process do require an attorney. You must have a bar card to file a lien, respond to a Bank’s Lis Pendens, or foreclose out an association’s lien. All that requires an attorney and for optimal results one should have an attorney who knows what they are doing and is a specialist in collections.

All too often I have seen community association boards be left completely in the dark regarding their collections that they have placed into the hands of their community association attorneys. Liens expire, bankruptcies get discharged & cases continue to be ignored, legal bills get out of control, funds from payment plans are accounted for using byzantine accounting methods, paralegals are mostly handling the cases, and when the end game comes (banks foreclosing), the association finds out that they spend two dollars to collect one dollar. The fact of the matter is that when you are paid on an hourly basis there is no incentive to get more when it comes to collections.

Just as community associations have turned to CAM Companies to oversee their facilities so too should community associations be looking towards collection companies to manage their collections. To be sure any collection company worth its salt must have access to legal facilities to do the legal work required, but there is so much more to collections that community association attorney’s do not do that make a big difference in effective results.

Some of these differences include such features as outbound calls to debtors, a persistent and resolute letter stream, reporting of non-payment to credit bureaus, payment demands made to first mortgage holders, inbound call centers with professional people trained to work with debtors in distress, clear and accurate reporting for CAMS and board members, payment plan management that is free and does not create an additional burden on the delinquent owner, and most important a negotiator who will fight tooth and nail with the foreclosing banks when it comes to bank payoffs of what is owed to the associations (no bar card required). It’s all too easy to send your delinquency issues to your community association attorney, but why not call in a collection specialist to your next board meeting and consider a new solution to a problem that will never go away but can be managed in a more cost effective and efficient manner. Every board member should ask the question: How much have we collected using our attorney and how much has it cost us? Run the numbers and consider the alternative.

Here is a prime example of how irrational some of the people we are dealing with.

Short history first. There was a motion 2 years ago at an annual meeting for the Board to research what would be entailed to sell the clubhouse building. There are no clubhouse amenities left. Many people don't want to pay the upkeep, insurance costs, etc for a building that is now empty.

So... one owner came in recently and said he is AGAINST selling the clubhouse building but then he proceeds to tell me he wants the HoA completely disbanded because there are no amenities left.

*facepalm*

It cost us $800 to foreclose. However, keep in mind the money your already out... The money owed plus the filed lien costs. Liens were abot $400 to file.

A foreclosure is for the amount owed, late fees, legal interest, certified letter costs, lawyer fees, legal filing (court costs),and other expenses involved in collecting. It takes about 3 months. That includes 3 times running the notification in a PUBLIC source like the local newspaper in the classified section. This is part of the PUBLIC notice requirement. No excuses for not being notified. So anyone can bid on the home.

Keep in mind a foreclosure STOPS as soon as the debt is paid. Some states have right to redemption. Meaning up to a year the owner can reclaim the property plus improvements/legal costs to get the property back. Which means if the HOA bought it (bad idea in most cases), it has to hold onto it for that time period. Each state is diefferent and some do not have it at all. Find out first.

The expense is not that much but the ramifications can be. Just hope for a new buyer and they pick up the dues from there.

It depends on if you know what you are doing. No offense meant by that at all. I find that many HOA's lean a bit toomuch on their lawyers and their advice. A lawyer will do what you tell them to do and will tell you that. However, if you know options and how to use your lawyer, it will save you money and effort. Unfortunately, it usually takes the first experience to learn the lesson.

It could cost that much money if you do not have a lawyer on retainer or on hand. We used a lawyer of our bookkeeper. He did what we told him to and he would charge for filing the paperwork. That is we needed him for. It was not for his advice or consultation.

I used lawyers in the aspect of "tools". Since not a licensed professional to represent in court or practice law, pay the person who can. Like hiring an Electrician. Most HOAs do not have that ability or comprehension, so they end up paying a large bill. Not that anything is wrong with that. It just adds to costs. A little research goes a long way...