One foreclosure is ruining the neighborhood

I live in a HOA community of about 65 homes with values from about $550,000 to $900,000. We have one home owner that lost his money when the economy went bad. About four years ago he stopped watering his lawn and bushes so that today he has no grass and most of the bushes are dead. He sells exercise equipment out of his open garage. Our board is very passive and doesn't really want to take action against the homeowner. According to one board member the bank owns the house and he is living there for free and they don't know what they can do to change the situation.

I made a suggestion to our board members that at some point he needs to move on so a new owner can give it new life. My question is how do we deal with him and the bank?

GnomeX is very persuasive. If the bank really owns it then all violations should result in action against the bank (letters, fines, penalties, etc.)

Why would they take on the bank exactly? Absolutely no benefit to the HOA. Matter of fact if theHOA did the foreclosure, they would be doing the work of the bank basically. The bank gets paid first and foremost even when the HOA forecloses. A HOA foreclosure is a stop the bleeding measure only. One just hopes the new owner starts paying their dues after they purchase.

The HOA should atleast have a lien on the property. However, this late in the game it is probably a wash. Do not expect to collect if already in debt this bad. It just good practice to have one in place.

The selling equipment out of their garage is not necessarily a rule violation. As long as they do not have a sign outside advertising their business, that is the defining line. A doctor can not come in and use the home as an office seeing patients. However, one can sell on ebay or sell Avon if they choose. There is a definition in your documents.

The damage is already done. Just have to wait this out till a short sale happens or the bank finishes foreclosing. Why not volunteer to help the person out with their yard work until tnen if so concerned? Kicking a person while they are down is just a bit much...

Do you know if anyone is paying dues on this property, Mike?

See if the bank really owns it--perhaps at the county recorder's office. If so, follow GnomeX & Fred's advice. Your docs may permit the suspension of common area privileges. If so, the board should do just that if you have any worth suspending.

In addition, your docs may permit the board to hire someone to at least tidy up the yard if its current condition is against your rules. Bill whomever the owner is.

Selling things from the garage of one's home might require some kind of license in your municipality or state. Look into it.

Meantime, gather several owners together and attend Board meetings. Firmly request that they act upon any violations. Each & every one of you.

Failing that, take Brian's advice, " . . . it's time to change the board. Vote one in that will do their job, enforce the contract, and be responsible to the people of the community, and be good caretakers of the money and trust they are given."

You also might be able to recall the board if enough owners are troubled by its inaction.

As you can see, Mike, any of these possibilities take work on the part of you & your neighbors.

I agree, the bank does not own it yet. He is in foreclosure, and living in the house until the bank takes possession of the house. If the foreclosure completed and the bank took the house, they would likely evict him and try to unload the property. Is he paying dues? if not, maybe you can foreclose on your lien and evict him. Or you can call code enforcement in your town if his house violates any local ordinances. Or perhaps your docs give you the right to fix the violation and charge him (how to collect is another story). I am sure there are other more reasonable things to try but if your board is not going to try anything, then its probably time to vote them out.

Ask yourself what incentive does the bank have to act quickly?

There is someone living in the home who is not likely to trash it as long as he lives there, so the bank does not currently have to worry about an empty house. And maybe the current owner will strike it rich in Powerball and bring everything current. There is no incentive to put the current owner on the street.

If the bank takes title, then they become liable for all the HOA fees, which just adds to their losses. No incentive there.

If the bank takes title, they will have to find a buyer to mitigate their losses. While market prices are generally rebounding they are far below what they were 7 or 8 years ago. I cannot imagine that there is a big market in Idaho for million-dollar homes, so the incentive to finish foreclosure is just not there.

Bottom line is that the bank has already lost a ton of money on this home and obtaining title through foreclosure just adds to the loss.

We are a small community of 300+ fee simple attached, single family townhomes and yes, we have been through about 20 foreclosures where the property was vacant and run down for some time. What's interesting and verified in many cases, is that when the lender or Fanny Mae forecloses and takes the property back, they do not record this at land records. Some articles speculate that they do this in order to avoid having to deal with the HOA and they certainly do not want to spend any money on the property (IE lawn maintenance, exterior painting etc) unless they have to. We tracked one property back to Fannie and it wasn't until the county got involved that we figured out who owned the house. Virginia allows assessments ($10 per day-up to $900) under due process for violations of the covenants, so if you lien the property after the assessment, at least you'll be notified of foreclosure proceedings.

Fred - I see in some states with the law makers are cracking down on the banks that will not record. You can follow the foreclosure activity on the web and when we find where the foreclosure process in complete, we start sending the bank all the violations notices, liens, etc. Some of them have been very responsive and others not, but what's really interesting is the fact that they will readily pay the $900 assessment. In some cases there might be 2-3 $900 assessments for different issues. Banks are also notorious for selling homes with complying with the Virginia Property Association act which requires that the Seller provide the Buyer with a copy of the HOA docs. So many of the purchasers scream "We didn't know about the violations" (primarily for maintenance issues which carry over to the purchaser who is still responsible after the purchase) and we see that the Banks do not usually ask the bank for the HOA docs. Yes, sometimes there is no realtor on the buyers side and usually the realtor would jump on this issue. If you can follow the foreclosure proceedings on the web, you can usually find the bank and just because they have not recorded, IMO, I don't believe that are not responsible. Also, on some issues (IE - Excessive debris, junk vehicles, vacant properties with broken windows, unauthorized vagrant squatters, Grass height over 1ft, etc) we can involve the county and they seem to have more influence that we do. We usually have to write off the assessments against the previous owner, but it all starts over again with the bank owned property. Even where we've seen banks that have recorded, they seem to ignore us and suffer the consequences financially.

Yes there are a number of groups fighting this, but banks have a lot of power. I do like some of your suggestions though and we have started being more diligent about pressuring banks with some success.