Bankruptcy,Foreclosure,new buyer

Started by DeborahL8 • 13 replies • 1818 views

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DeborahL8 (Virginia)
Posts: 6

Posted:

HOA President in Virginia.

We have a home past due with their assessment fees (currently two qtrs $200. + processing fees never paid totaling $21) Informed today they are filing bankruptcy, rolling into foreclosure of their home.

Two problems. First the past due balance and 2nd their is a new potential buyer that has been given "permission" to move into the home prior to purchase while waiting on the foreclosure to process. What happens if the foreclosure is stalled? Do we have any options? Who is then responsible for assessments? We have a new billing going out in September as the current owner pays quarterly. We finally were able to obtain an address on the current owners but our certified mailing was returned unclaimed, which contained their past due notice.

We charge $75 for our disclosure packet which is usually picked up by the real estate agent selling the home and figured into the closing fees. How do we handle this? We have no information on when or who is conducting the close and the potential buyer is not talking. I did hear talk of the bank and called but was informed the loan was still open, no foreclosure. (yet)

We have a gated entrance to our dock area and pool. I assume since the current owners reneged on their payments that the key wasn't forwarded to the potential buyer as well. Do we have the right to refuse entry to our common areas?

I have been in contact with the potential buyer and informed that a possible closing will be this week. She has placed a "POD" with her furniture in her driveway until the house can be cleaned up inside (it's a mess, both inside and out). She has informed me she told the bank she is not paying for any fees or taxes that were made prior to her purchase.

The current owners have left the State and informed me today that since they've filed bankruptcy I cannot contact them anymore concerning this property. They had left the area two years ago but their son lived in the home until this year.

Our Attorney charges $175 per hour. Is it worth filing the lien at this time? Do we play wait and see in case there is a closing in the next week or so? Since they've filed do we stand a chance to actually see any collection. I've heard there was a 3rd mortgage involved and now the home is worth less than the loan. If we don't proceed legally is it fair to the homeowners to "forgive" assessment debt and start fresh with the new owner?

It's a touchy situation. I want to welcome in a new neighbor but yet they really aren't "legal" neighbors yet. We are a long standing neighborhood and most here are original owners. I hate to start off on the wrong foot with another potential long standing resident. (Call me Mrs nice woman) Is there a tactful way to handle this and still achieve results in collection?

Thank you for any comments to help.

GlenL (Ohio)
Posts: 5,491

Posted:

Quite frankly you will probably have to write the $221 off as bad debt and be thankful that is all it is. Welcome your new neighbor and bill her for the third quarter.

Studies show that 5 out of 4 people have problems with fractions

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Deborah

Tim, one of the site posters, is from VA and very knowledgeable about VA laws. I am sure he can well advise you how to do it in VA.

Now to the heart of the matter. Are we talking about only $221.00? If so, why even think of pissing a new owner over $221.00. Heck, I have spilt that much at the bar during a long night out.

Were I on your BOD and we are discussing legal action, go after someone, piss the new neighbor off from the get go, etc. for $221.00, I would pay it myself to see it go away versus call our scumbag lawyer who might well charge more for the bloody phone call. I love run on sentences....LOL

MoM1 (Massachusetts)
Posts: 56

Posted:

Deborah

Without a prior lien filed on this unit, your association is considered an unsecured creditor in the eyes of the bankruptcy courts. Once the bankruptcy has been approved by the courts unsecured debt is wiped off the books of the debtor. Your board is not "forgiving" the past due assessments, you are writing off a debt that will cost your association far more in money and ill-will towards a new owner trying to collect than you will ever see in cold hard cash.

AllisonD (Florida)
Posts: 449

Posted:

I have never heard of a buyer moving into a home prior to purchasing while waiting on a foreclosure process. Are you sure these folks are purchasing and not just living in the house rent free until they are forced to leave?

SteveM9 (Massachusetts)
Posts: 3,699

Posted:

Maybe there is no sale. No bankruptcy. They will simply let this person live in the house until foreclosure, 2 years or so down the road. If this is the case, I'd start the procedure for the hoa foreclosing on the house and have the hoa rent it out to recoup the part dues.

DaveD3 (Michigan)
Posts: 796

Posted:

I'm kind of with Steve on this one.
What EVIDENCE do you have of bankruptcy, foreclosure, or sale?

Generally speaking, if there is a new buyer, a lien is next to worthless. Liens can get you new neighbors, but aren't that great at getting you past due amounts if you're not the one foreclosing on the property. Depends on the amount of equity in the property, of course, but someone in bankruptcy allowing their home to go into foreclosure, probably isn't sitting on a pile of $$ tied up in equity in their home.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Deborah,

I am not an attorney and I do not work within the legal profession. I appreciate that others find my opinions helpful but I am only offering opinions based on the information contained in your posting, personal experiences, any research done and, hopefully, some common sense. With that said, I hope the following helps:

As Mom pointed out, until you record your lien it's an unsecured debt. Unsecured debts are typically the last to be paid anything from the proceedings.

As the owner correctly pointed out, while in bankruptcy, you may not contact them directly.

If bankruptcy is truly happening, the Association may receive something, providing the debt is included in the bankruptcy. The best way to do this is to file a lien. If the property closes without a lien, you will have no way to collect the debt. Unfortunately it is my understanding that once the bankruptcy has been filed you may not file a lien.

It is likely that you will need to write the amount off. I also understand throwing good money after bad money by using the attorney. However, Bankruptcy and/or foreclosure can take some time to finalize (perhaps years) and the Association does have a due diligence requirement to try and collect past due assessments.

You should also be aware that many owners who declare bankruptcy only include the amount currently owed to the Association in their paperwork filed with the courts. This mistake means that the owner would still be obligated for any assessments that came due after the paperwork was filed (as it was not included in the bankruptcy). Example:

Assessments are $100 per month. Owner never pays and files for bankruptcy on July 1 and it's finalized on July 30.

If the owner claimed they owed $600 to the Association, then the Association may still collect any assessments from July 1 forward.

If the owner claimed they owed $1200 to the Association (the full year) then the Association can not collect any assessments until January 1 of the following year.

Bottom line is that the Association needs to see what was filed with the court to know what options are available to them.

This may explain it better (cut and paste from another site):

Section 523 (a) (16) of the Federal Bankruptcy Act excepts from the debtor's discharge all assessments which become due and payable after the debtor's bankruptcy papers are filed. In other words the law allows you to pursue collection of an owner's delinquent assessments if they became due after his bankruptcy filing. The Board should pursue such assessments by exercising acceleration options and record liens every 90 days as provided by the Condo Act and the POA Act. This will give you a secured debt and the ability to foreclose when and if the time is right. In these financially stressful times these rights should be pursued to insure the financial health of the association if there is a reasonable chance of recovery and realization of a reasonable net amount after all costs to collect.

Here are some links that may provide more insight:

The Bankruptcy Process by the Virginia State Bar Association

After my bankruptcy hearing: Pay the car. Pay the HOA. article by a Bankruptcy attorney.

US Courts website, Bankruptcy page

Hope this helps,

Tim

MatthewW4 (Arizona)
Posts: 500

Posted:

Deborah,

If your association has not been served with a notice from the Bankruptcy court then you should not take the word of the deadbeat owners that they have filed. Even if they did actually file for bankruptcy, without a notice from the court you have no reason to believe that the money owed to your association has been listed as a dischargeable debt.

This situation sounds like a short sale rather than a foreclosure. In a short sale, the seller lists his home for sale at a price less than what he still owes on his mortgage(s). He secures a written offer from a buyer, presents that offer to the lender, and asks the lender to accept that offer in lieu of full payment. The lender typically takes months to mull things over and there is no guarantee that the lender will accept the deal.

In this case, it sounds like the seller (the deadbeats who moved out) and the buyers (the ones moving in) are treating this as a done deal. You ought to verify the buyer's optomistic claims, as there is a lot of risk for the buyers in taking possession of a home that is still in someone else's name. You would be within your rights to obtain the name of the realtor and escrow agent to verify.

Unlike a foreclosure, a short sale does not eliminate liens against the property. Unless the buyers are paying cash, they will have to obtain a mortgage of their own. Lenders usually will not fund if there are unpaid taxes and/or unpaid HOA fees.

My first thought is that you should file a lien for the unpaid assessments ASAP. This will serve as notice to the lender. I understand the buyer's insistence that they are not responsible for the unpaid taxes and assessments, but they purchased the property subject to those liens. The tax assessor is not going to forgive what is owed to him and the HOA should do likewise.

DeborahL8 (Virginia)
Posts: 6

Posted:

I appreciate all the helpful information I receive here and I'm here reading often! I've been President for my Assoc. volunteering for two years now and my goal has been to always keep the Association's best interest first in line. In doing that it sometimes steps on the heels of others and I have been on just about everyone's short list at one time or another. I tend to be a "what if" person which can be helpful but at the same time a hindrance. To top it off I'm ADD so I have to push myself to act.

But this situation just didn't smell right from the get go. I agree it makes no since why a bank would agree for a "potential" buyer to move into a home waiting for a foreclosure to take place. The liability alone for one reason. This person already has a crew working on the inside of the home. Granted, it's in sad shape, but still, she isn't the owner of the home. She's sinking $$ already on what may not even become her home!

My scenario is "she approached the seller with a "deal", he took it, and gave her the key to move in. The bank is unaware of the move and both buyer and seller are waiting for the bank to foreclose, something that may not come for months". After all, what is in it for the seller to find a buyer as he isn't going to get any money out of the deal through a sale with 3 mortgages and filing bankruptcy.

Today we head to the Attorney for his advice on steps to move forward with a lien and several other questions. I worry about what we can and cannot do if this continues on for months/years/before settled.

Tim, if after they file the bankruptcy (say they listed owing $200 to us), we file a lien for the current $200, then 3 months from now we have another $100 due. We file again, and so on. My question: Do we have to file through the attorney and rack up more legal fees to do this or is the current lien amendable? Are we suppose to bill the homeowner these new fees or is that in the "no contact" clause even though it's after the bankruptcy filing and a new assessment and they still own the home? Do we as an Association just continue to "put up" with the squatter type situation? Do we have rights to request the lawn maintenance be kept up or other things in regards to the property since they aren't the owners and we can't contact the homeowner? There are so many fine lines here. I know we must do what's best for the Association and follow the Declaration Regulations, but the legal fees could affect our treasury's bottom line so much more than the assessments themselves. Caught between a rock and a hard spot since the integrity of the Declaration is so important to maintain for future unrelated problems that may arise within the Association and this being used as an escape clause if not followed through to the end type thing.

Finally, coming here has been lifesaving for me during the past two years. We are a small neighborhood. But in reality it doesn't matter if you have 4 houses or 40, you still have the same problems, the same requirements to meet, and it's wonderful to have a website that treats you as an equal player. I'm in no way a professional in this field. I've received both praises on what has been accomplished with upgrading our Bylaws this past year, handling a lawsuit, etc. but also because of acting in the interest of the Association I've been declared the bad guy as well stepping on toes to do it. Tim, being in Virginia, I have followed your advice closely and I thank you for your input here on HOA.

Debbie

MelissaP1 (Alabama)
Posts: 13,836

Posted:

I moved into my house before my closing. I had to make pro-rated payments to the owner. The reason being that the closing of my new house interfered with the new tenants moving into my other house. My new house was empty as it was an in-process flip. So it is possible for one to make arrangements to move into a house before closing. That is something the seller/buyer do work out with each other without the HOA's involvement. The HOA is a third party to these transactions.

The HOA should not care about the owner's arrangement. They should focus on the current owner and placing the lien on the property. No need to foreclose or consider that. Once the bank does that, it's really a waste of time and money on the HOA's behalf. You may want to see if your state does offer a "Super lien" option. That will give your lien the same weight of the bank and give the best option of getting any money out. However, only a few states offer those and not a guarantee of seeing any money.

Each state is different on if you can file a lien with or without a lawyer. Sometimes you can save money by just hiring a legal service to do the work. I would ask your lawyer or call the courthouse to find out their policy. It can be "free" to file a lien or it can cost a few hundred dollars. The cost of which is added on top of the lien. Plus interest, late fees and other associated costs. (not fines in most states). This lien would go to the existing owner. Which unfortunately, the lien may just get taken out of the wash when all is said and done.

My suggestion is to make sure your HOA has a solid lien policy in place. We had a 6 month and we liened policy. We collected dues monthly. This way it is isn't random or selective enforcement. It is a policy that each member should be aware of by meeting notes or if you want to make changes in the by laws you can. It depends on how you collect dues on what time limit you should do.

The person moving in should be informed there is an HOA. However, them not being an official member are not responsible for the dues. They will be once they take possession of the property. This could be a "short-sale" situation or temporary rental. It doesn't matter as long as you address the existing owner who is a HOA member.

I applaud your efforts so far and glad you come here for advice and learning. It is a great resource I wish I had available to me when I was on my board and president. Found a lot of information and still do that helps.

Former HOA President

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By DeborahL8 on 08/22/2013 6:44 AM

My question: Do we have to file through the attorney and rack up more legal fees to do this or is the current lien amendable?

The honest answer is, I don't know. We haven't had to file many liens (the last one was 8 years ago) and the last time we did file, we used our attorney. Expensive but at least we were sure all the i's were dotted and t's crossed.

They should be able to advise you. Mind you, if you just tell any attorney that the Association wants to file a lien, the attorney will likely send the necessary notifications prior to filing. Each letter costs money. However, if the Association has already followed those procedures you can simply instruct the attorney to only file the lien and save some money.

Quote:

Posted By DeborahL8 on 08/22/2013 6:44 AM

Are we suppose to bill the homeowner these new fees or is that in the "no contact" clause even though it's after the bankruptcy filing and a new assessment and they still own the home?

As I understand it, the Association may not contact the member about existing debt. However, they may still contact the member about violations and new debt. To be safe, you should ask your attorney that question

Quote:

Posted By DeborahL8 on 08/22/2013 6:44 AM

Do we as an Association just continue to "put up" with the squatter type situation?

If you believe that the individual is truly a squatter, contact the police.

However, if you know that the owner gave permission to the individual, then the Association has to, as you say "put up" with the situation.

Quote:

Posted By DeborahL8 on 08/22/2013 6:44 AM

There are so many fine lines here. I know we must do what's best for the Association and follow the Declaration Regulations, but the legal fees could affect our treasury's bottom line so much more than the assessments themselves.

Use this as a learning curve.
Write down the questions you wish to ask (and be fairly specific).

Example: If the member is in bankruptcy, can the Association contact the member about issues other than the debt (such as covenant violations and yard maintenance)?

Once you have gone through this process, write a "lessons learned" paper for the Board and make sure it's with the Associations paperwork. Otherwise, a future Board may have to pay to relearn everything you have learned.

MatthewW4 (Arizona)
Posts: 500

Posted:

Deborah,

I understand that this all new territory for you, but I think you are making at least two unwarranted assumptions at this point.

First, you are assuming that the legal owners have filed bankruptcy. Why? Because they said they did. That's not how it works. If they filed, the court would send a notice to your association if it was named in their filing as a creditor. Until you receive notice from the court, their story is just that: a story. I saw nothing where you indicated receiving a notice from the federal bankruptcy court but maybe that was a detail that was omitted.

Second, at this point you have no evidence of a foreclosure. You stated that you called the bank and they said there was no foreclosure pending. If you search the recorded documents you may be able to confirm that a foreclosure is pending if some sort of notice has been recorded. I have to agree with others that it makes no sense for someone to spend serious money on cleaning up a property and moving in while a foreclosure is pending. Besides, the new occupant has stated that there is closing date approaching, which is not consistent with a foreclosure. My guess is that the new buyer has been hoodwinked into believing that her short sale offer has been accepted when it has not. Given the fact that the housing market has been rebounding the lender has little incentive to take big losses.

Since your association has an interest in the property, it would be in your best interest to find out all you can about the details of the sale/transfer/foreclosure of the property. If the person now occupying the home wishes to keep that a secret then follow the advice of others and treat her as a squatter.

DaveD3 (Michigan)
Posts: 796

Posted:

The more I think about it, the more I agree with the FILE A LIEN NOW opinions.
Secure your place in line ASAP as soon as you hear of a bankruptcy or foreclosure.
Don't trust the word of the owner without documented proof.

As for the lien, we had to file one recently. Cost only about $170 for the attorney to do the paperwork, file, and mail them a notice of lien via certified mail. I don't think that was too bad.

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