Mortgage Foreclosure & HOA Lien

Started by DaveD3 • 25 replies • 1749 views

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DaveD3 (Michigan)
Posts: 796

Posted:

We filed a lien on a unit late last summer for past dues.
A couple weeks ago, we received notice of an upcoming foreclosure sale on the property initiated by the mortgage company. Not just a foreclosure notice, a SALE notice, as in the property sold on the courthouse steps and all that.

The balance due on the mortgage puts them about 20 leagues under the sea (probably $50k+ underwater on a <$200k house).

There's a 6 month redemption period during which they can recover the property by paying off the mortgage (highly doubtful).

It seems to me, since we're junior to the mortgage anyhow, the best we can do right now is write off the lien and hope we end up with better neighbors that actually pay their bills. Based on the timing, it seems like the bank's foreclosure was well in process by the time we filed our lien, which explains their lack of concern.

Thoughts otherwise?

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By DaveD3 on 01/03/2014 4:14 AM

It seems to me, since we're junior to the mortgage anyhow, the best we can do right now is write off the lien and hope we end up with better neighbors that actually pay their bills.

That is all foreclosing does for anyone.

If you write the amount off, and you want one final little victory, submit appropriate paperwork to the IRS as the previous owner will have to claim that amount as income.

JohnB26 (South Carolina)
Posts: 1,569

Posted:

That is all foreclosing does for anyone.

that is why:

lien at 3 months delinquent

foreclose at 6 months

STOP THE BLEEDING

LarryB13 (Arizona)
Posts: 4,099

Posted:

Dave,

You may still be able to recover the debt from the previous owners. The bank's foreclosure does not wipe out their obligation, it only blocks one of your avenues to recovery of the debt.

You should be able to file a civil action to recover the unpaid assessments. To do this, you need to know where to find them as they will need to be served in person. You also need to be fairly sure that they have the means to pay a judgment when they lose. An attorney will charge you for his services whether you win or lose, so there is no point in heading down this path without a reasonable certainty of success.

BrianB (California)
Posts: 2,820

Posted:

Quote:

Posted By TimB4 on 01/03/2014 5:25 AM

Tim, you just got ten points in my little grey book of tiny evils. Love it!

DaveD3 (Michigan)
Posts: 796

Posted:

Quote:

Posted By JohnB26 on 01/03/2014 6:15 AM

That is all foreclosing does for anyone.

that is why:

lien at 3 months delinquent

foreclose at 6 months

STOP THE BLEEDING

Trade the bleeding for a headache.

While I understand your position, I think 6 months is a ridiculously short time to initiate a foreclosure. Why should an HOA foreclose at a more aggressive rate than any other entity?

LarryB13 (Arizona)
Posts: 4,099

Posted:

Quote:

Posted By DaveD3 on 01/03/2014 7:26 AM

Why should an HOA foreclose at a more aggressive rate than any other entity?

Because you are at best the Number Three Man on the foreclosure totem pole.

Tax liens and mortgage liens trump yours. You have already found out that when you are not in first place you stand to lose everything. Banks in recent years have dragged their feet in foreclosing and tax liens usually have a statutory waiting period. Had you jumped in at the six-month mark and foreclosed, your association would have obtained title until the bank foreclosed. You might have been able to rent that home out during that period and recouped some or all of your losses but it was more likely that someone would have purchased the house at the foreclosure auction, making you whole.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Lessons of a foreclosure: BANKS GET PAID FIRST AND FOREMOST. Even if your HOA did foreclose, the bank would get what it was owed. Basically, doing the work of the bank. That is why one never ever forecloses on a HOA home if the bank is foreclosing. You will know if they are as it's considered PUBLIC NOTICE. It is published in your local paper under the "LEGAL" section of the classifieds. Each newspaper has their own days they publish this information. It has to be done as part of the legal process before the final bid on the steps of the courthouse.

The HOA does not want this house. It's rare that this pays off. Considering the HOA may have to undertake the bank loan if money is still owed, make repairs, pay for the utilities, pay the HOA dues, and any costs associated with renting or selling. It's better just to stop the bleeding and hope for new owners who will pay up.

We did a 6 month we liened. 1 year we would consider foreclosure. It depends on the situation. If it's a military person, you can't foreclose while they are serving. So not every situation means foreclosure just because it meets the cutoff date of a year. Plus by then, the bank may be foreclosing and you don't want to touch that.

Some states do have "Super liens" that put them on the same level of the bank. However, most of the time there's no money in a foreclosure. It's just a wash. So the HOA can split the amount of nothing with the amount of nothing the bank collects.

Hope you get new owners and just move on. One would need the social security number of the previous owner to pursue some options. Plus just spending more money after bad to pursue a debt just is not worth it. A HOA does not need a social security number of it's residents ever. So not really an option to go after a person to garnish wages without such information or addresses.

Former HOA President

KellyM3 (North Carolina)
Posts: 2,239

Posted:

Dave,

Confirming your sentiment. Await your new owners to arrive and write off the lost revenue. It's not worth reporting the previous owners to the IRS, either. It's vindictive and nasty behavior. Besides, these folks lost a house.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Mel

We just had a discussion among our Advisory (transitioning from developer to owners) BOD concerning liens, debts, foreclosures, etc. I was quite surprised how many thought that if we foreclosed, we got what is owed. When I said it is probable that there are many are ahead of us to get paid (like mortgage holders) thus after they are paid, there may well be no money left to pay us. Several assumed because we (the HOA) did the foreclosure, we got paid first. Several also assumed our lien did not go away upon foreclosure. One even said he thought any new buyer had to catch up any past dues. I did not know where to begin to explain......LOL

Additionally, our dues are $600.00 per year. We have never been stiffed for more then $1,800.00 and that one is still up in the air about if we get stiffed or not.

A little vent here. We have one person that relocated here from FL and keeps assuming what they knew about FL, applies here. They argue every single point by saying...When I lived in FL, we.......

CarolF (Florida)
Posts: 435

Posted:

Melissa - perhaps in Alabama you still do foreclosure sales on the court house steps. In my county in Florida, and in many counties here all of the foreclosure sales are now held via the internet. Take a look at this website, it's interesting. https:www.volusia.realforeclosure.com
All of the foreclosures require a judicial proceeding first. Then if a final judgement & sale is ordered by the court, the sale is scheduled for bidding at the time and date on the website's calendar.
Take a look at the calendar.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Well, as we know, laws and procedures vary from State to State

JohnB26 (South Carolina)
Posts: 1,569

Posted:

yep ..... but foreclosing will stop the bleeding

MelissaP1 (Alabama)
Posts: 13,836

Posted:

We still have the process of going out on the courthouse steps and announcing the intent to foreclose on the courthouse steps. It even dictates which side of the courthouse square this is to happen on. The process is like 3 mo month process. They have to run an announcement in a public source for the person to respond if they do not by mail/phone. It runs atleast 3 times before. The person can then still pay up to the moment of the bid on the stairs. They just have to show up and pay what is owed. The first bid goes to the HOA plus $1. Which means that not only are you paying the legal fees and still owed the $5K they may owe you, but you have to also bid that same amount PLUS $1 to own the home. Plus in our case, if the owner owed money to the bank with a second or first mortgage, the HOA will be responsible for picking that up. Meaning a house payment on top of everything else. So no it's not worth owning a foreclosure as people assume.

I've done a foreclosure and later it had complications that took us to court. The funny thing is that it ALL STOPS as soon as the money owed is paid. I just don't get the drama people bring to the situation and then make the HOA sound "evil" money grubbers. I don't think taking legal steps against someone that owes you money and doesn't pay up, is an "evil" thing to do. Plus what money grubbing if you owe the money?

Former HOA President

BanksS
Posts: 403

Posted:

Why don't you all go the small claims route? My HOA does this instead of liens and foreclosure. It seems to me to be simpler and perhaps you actually have a better chance of collecting. You don't need to pay an attorney. One of the directors can represent the HOA. Each state has its own small claims limits. In Iowa its $5,000 but would not recommend you let the delinquent accounts grow that large. You may even win by default. Meaning the defendant didn't show up to the hearing. There are exceptions of course and I am not an attorney. Just saying that is what is done in my HOA.

You can also withhold membership privileges. Members not in good standing can not vote or use the amenities provided by the HOA. Utilities is another matter. State law may not allow you to withhold or cut off utilities. But use of the pool could be one of those amenities.

I am first and foremost an advocate of working things out with people as liens, foreclosures, and even small claims court carries with them an ugly side. They create a climate of bad mojo in the neighborhood.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Small claims is NOT a good option. The reason being? It does NOT guarantee the money and the person can sell/move without ever paying the judgement. A lien the person can NOT sell their home until their debt is paid. A foreclosure stops the bleeding and gives a chance for new ownership to start paying anew.

People think that small claims is the way to go. It's really not. Small claims does give one a "Judgement" but that does not mean money. It's like a giant "IOU". Which has to be renewed every 7 years if one doesn't pay it. Which means in 7 years from now is anyone going to remember to try to collect this debt and how? You may need their social security number for garnishment. That is information the HOA is NOT entitled to. So how does one then collect?

A HOA is much much better off without going to small claims court and have much better options. They just have to understand what those are and how to apply them properly.

Former HOA President

RichardP13 (California)
Posts: 1,767

Posted:

I have to disagree with Melissa from personal experience. A small claim filing after a lien has been properly recorded on the property seems to do wonders. Why not head it off at the pass before it gets out of hand. I have liens placed after $500.00 and file paperwork for small claims shortly thereafter, IF the owner doesn't respond.

In California, an HOA can foreclose at 12 months or $1800, whichever comes first. Have a plan for the property and move forward.

BanksS
Posts: 403

Posted:

Quote:

Posted By MelissaP1 on 01/03/2014 8:08 PM
Small claims is NOT a good option. The reason being? It does NOT guarantee the money and the person can sell/move without ever paying the judgement. A lien the person can NOT sell their home until their debt is paid. A foreclosure stops the bleeding and gives a chance for new ownership to start paying anew.

People think that small claims is the way to go. It's really not. Small claims does give one a "Judgement" but that does not mean money. It's like a giant "IOU". Which has to be renewed every 7 years if one doesn't pay it. Which means in 7 years from now is anyone going to remember to try to collect this debt and how? You may need their social security number for garnishment. That is information the HOA is NOT entitled to. So how does one then collect?

A HOA is much much better off without going to small claims court and have much better options. They just have to understand what those are and how to apply them properly.

It seems to be working in my HOA as we have very few delinquencies and those who do not pay its usually because the member is making a statement. The member is having a disagreement with the BOD for various reasons. The member believes that by withholding the dues and assessments this will force the issue at the hand which is not about the money but something else. I'm not saying I agree with this but that is the reality in my HOA. Just this year there are 3 members being sued in small claims court who are long-time members who have always paid their dues and assessments on time. There are other issues involved that the members are displeased about.

My point is there are options besides liens and foreclosures. As Melissa said in a previous post the HOA is not likely to receive any money from a foreclosure.

In Iowa, liens require a renewal every 7 years as well. So one cannot just file a lien and forget about it. It also has to be paid attention to.

AllisonD (Florida)
Posts: 449

Posted:

A small claims filing is a good idea and at least in Florida, you can get the Sheriff to auction the debtors belongings to pay off the judgment, it will ding the person's credit and they will be forced to go to court or default. This is a good idea for someone who is still paying their mortgage but just wont pay dues. And remember, the judgement is a set amount, and when dues continue to be delinquent, you must go back again. You hope that the homeowner will not want to go through that scenario again, and just pay. When the house is in bank foreclosure, ultimately, the bank will take the house over, but in the meantime, by the HOA foreclosing its lien, the HOA can rent out the unit and the rent can pay delinquent dues. I have a homeowner who has never paid dues. We were foreclosing on him (its been 18 months since the lien foreclosure started and he was not living in the house, but he had people living there) and he moved out and now he has officially rented his house, so we are changing strategies and are going to demand the tenants pay the HOA the rent until the delinquent dues are paid off.

The main goal is always to get delinquent dues paid off. In Florida, the banks lobbied successfully and are only legally responsible for 1 year's dues at the end of the bank foreclosure. Its to their best interest to drag out the bank foreclosure as long as possible. For the 3 houses we foreclosed our lien on, the banks were glad we were renting them out.... it meant we fixed up the house and were keeping it in good condition and they did not have to pay dues on the house yet. I think this will change as foreclosures become less common and banks are able to get through the courts faster, but for now, my HOA has certainly benefited from renting out these houses.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Just to show differences. In SC an HOA can take a person behind in dues to Magistrates Court (our small claims court) for dues owed. It cost $50 or so to file the action. Any BOD Member can represent the HOA meaning no lawyers needed. If the court orders the person to pay the dues (judgment) and they do not pay within court ordered time, usually 30 days, the HOA can take this judgment to the County Clerk of Deeds and a lien will be issued.

Basically an inexpensive method of filing a lien.

Also a default warrant will be issued via the courts but I am not up to speed on this.

We do it a bit different:

We have tried several ways to collect back dues in that we talk to people, try and arrange payment plans, waive late fees ,etc. but it gets to a point where they ignore us or do not honor their promises. We felt that by this time we had no "weight" with them so we needed an alternative with more teeth in it.

We use a real estate law firm that has a division within it that specializes in owner associations. They use a multi step process to collect. To the best of my recollection it works like this:

1. Our first attempts are to collect any owed money ourselves so after 30 and 60 days late, we send polite letters from the HOA even offering to make payment arrangements.

In the next quarterly bill, the HOA sends notice reminding the owner they are 90 days late and asks for back and present dues or a payment schedule acceptable to the HOA within 30 days or we will turn the account over to a law firm for collection. It is now almost 150 days since we have seen a payment. If no arrangements are made, we send it on to the law firm.

2. The law firm sends a letter informing the homeowner that they have received the case and are prepared to file a lien and commence to foreclose unless owed dues are paid and/or a payment schedule is arranged with the HOA within 30 days. The firm charges the HOA $65.00 for this letter.

The law/collection firm then backs off and awaits further notification from the BOD. It is now back in the BOD's lap. The BOD then tries once again to reach an agreement. In several cases the letter from the lawyers was enough for owners to make arrangements to pay. If no arrangements are made we turn it back over to the law/collection firm again. We control the timing of when we turn it back over to the law firm.

3. Law/collection firm sends a letter saying a lien has been filed (which it has) and foreclosure has commenced. It will now cost the homeowner $495.00 (to the law firm) plus owed dues to the HOA to stop the process. There is no charge to the HOA but the homeowner must pay the $495.00 to the law firm and back dues to the HOA to be current. We had one homeowner go to this level. They paid the law firm and the HOA.

4. If no response within 60 days, the law/collection firm files some paperwork with the court about foreclosure and notifies the homeowner that foreclosure has begun and it will cost $995.00 (to the law firm) plus back dues to the HOA to stop the process.

5. The next step would be the HOA pays the law firm $400.00 and foreclosure commences. The process is completely stoppable at this point by the HOA, the HOA would still have a lien, and the law/collection firm is owed $995.00 by the homeowner

We do not want to be in the real estate business and we have no wish nor desire to foreclose. I am not saying all should not foreclose but our decision is not to and as such, we have not gone past Step 3. I advise we never do.

We are running about 3-5% in overdue dues we expect we will never collect on and we have budgeted for that.

FYI our dues are $600 per year. Yes $600 per year.

Hope this helps.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Liens and Small Claims judgments are still Court judgments. They just operate a bit differently in execution. I believe your doubling your expense and work if you sue and then lien. Just go for the lien which accumulates over time versus a small claims that's a set amount without accumulation. Plus a lien means one can NOT sell their home and move without paying. A judgment means tracking the person down and maybe never seeing the money. It's best to have a lien in place ultimately.

Former HOA President

AllisonD (Florida)
Posts: 449

Posted:

Quote:

Posted By JohnC46 on 01/04/2014 7:33 AM
Just to show differences. In SC an HOA can take a person behind in dues to Magistrates Court (our small claims court) for dues owed. It cost $50 or so to file the action. Any BOD Member can represent the HOA meaning no lawyers needed. If the court orders the person to pay the dues (judgment) and they do not pay within court ordered time, usually 30 days, the HOA can take this judgment to the County Clerk of Deeds and a lien will be issued.

Basically an inexpensive method of filing a lien.

Also a default warrant will be issued via the courts but I am not up to speed on this.

We do it a bit different:

We have tried several ways to collect back dues in that we talk to people, try and arrange payment plans, waive late fees ,etc. but it gets to a point where they ignore us or do not honor their promises. We felt that by this time we had no "weight" with them so we needed an alternative with more teeth in it.

We use a real estate law firm that has a division within it that specializes in owner associations. They use a multi step process to collect. To the best of my recollection it works like this:

1. Our first attempts are to collect any owed money ourselves so after 30 and 60 days late, we send polite letters from the HOA even offering to make payment arrangements.

In the next quarterly bill, the HOA sends notice reminding the owner they are 90 days late and asks for back and present dues or a payment schedule acceptable to the HOA within 30 days or we will turn the account over to a law firm for collection. It is now almost 150 days since we have seen a payment. If no arrangements are made, we send it on to the law firm.

2. The law firm sends a letter informing the homeowner that they have received the case and are prepared to file a lien and commence to foreclose unless owed dues are paid and/or a payment schedule is arranged with the HOA within 30 days. The firm charges the HOA $65.00 for this letter.

The law/collection firm then backs off and awaits further notification from the BOD. It is now back in the BOD's lap. The BOD then tries once again to reach an agreement. In several cases the letter from the lawyers was enough for owners to make arrangements to pay. If no arrangements are made we turn it back over to the law/collection firm again. We control the timing of when we turn it back over to the law firm.

3. Law/collection firm sends a letter saying a lien has been filed (which it has) and foreclosure has commenced. It will now cost the homeowner $495.00 (to the law firm) plus owed dues to the HOA to stop the process. There is no charge to the HOA but the homeowner must pay the $495.00 to the law firm and back dues to the HOA to be current. We had one homeowner go to this level. They paid the law firm and the HOA.

4. If no response within 60 days, the law/collection firm files some paperwork with the court about foreclosure and notifies the homeowner that foreclosure has begun and it will cost $995.00 (to the law firm) plus back dues to the HOA to stop the process.

5. The next step would be the HOA pays the law firm $400.00 and foreclosure commences. The process is completely stoppable at this point by the HOA, the HOA would still have a lien, and the law/collection firm is owed $995.00 by the homeowner

We do not want to be in the real estate business and we have no wish nor desire to foreclose. I am not saying all should not foreclose but our decision is not to and as such, we have not gone past Step 3. I advise we never do.

We are running about 3-5% in overdue dues we expect we will never collect on and we have budgeted for that.

FYI our dues are $600 per year. Yes $600 per year.

Hope this helps.

I guess you have to strategize (not sure if that is actually a word) differently depending on the amount of dues but wow, your folks pay $50 per month and cant even come up with that much. I have to say that we are always willing to work out a solution when the homeowner contacts us or when we know the homeowner has fallen upon hard times (health, job) we will contact them to ask what arrangement can we make but I like these sorts of procedures where all homeowners know the progression of events that will occur when they do not pay dues.

DaveD3 (Michigan)
Posts: 796

Posted:

Quote:

Posted By LarryB13 on 01/03/2014 10:34 AM

Posted By DaveD3 on 01/03/2014 7:26 AM

Why should an HOA foreclose at a more aggressive rate than any other entity?

Fair enough, and I understand our place in line.
A tax sale takes roughly 3 years to complete from delinquency. It's easy to see and predict since a tax lien is filed and visible.
A mortgage foreclosure is quite a bit more difficult to know if it's happening since they already have a lien. But it's doubtful that it's going to happen within 6-9 months.

And there's also the hassle of a foreclosure, which is exemplified when considering that our dues are under $300 per year.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Mortgage foreclosures are PUBLIC information even liens. It is published in your local paper in the legals section. Just have to know where to look.

Former HOA President

DaveD3 (Michigan)
Posts: 796

Posted:

Quote:

Posted By MelissaP1 on 01/05/2014 8:46 PM
Mortgage foreclosures are PUBLIC information even liens. It is published in your local paper in the legals section. Just have to know where to look.

The actual foreclosure sale notice, yes. But that can be long after the bank foreclosure process has begun.
As near as I can tell, until the announcement is made that a sale is planned, there is almost no information available to the public.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Allison

I agree our $600.00 per year is not that much. Heck, between what I lose in golf balls every year and spill at the bar....I got $600 covered....LOL

The plan we put in place does not cost us anything but the original $65.00 letter from the law firm so small change there. Any steps beyond that are between the owner and the law firm but at least we do get in line via the lien.

Understand we do work as close and as obligingly as we can be with the owner (usually 6 months or more) before we turn it over.

In the last three foreclosures (by the lenders), we lost about $600 per house. Our worst case is presently about $1,800.00. Owner died and it is tied up in an estate. Also it was a 100% VA mortgage. Little to no equity. I expect it actually to be negative once all is said and done. We are not touching that one.

Between us, I would be opposed to our HOA foreclosing. If for no other reason, as you said, $600.00 per year is not much money. Not that much to the HOA nor an amount worth losing a house over. I also believe make the sale go as fast and as smooth as possible. Get a dues payer in ASAP.

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