Lien vs Foreclosure

Started by ToriaM • 33 replies • 2048 views

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ToriaM (North Carolina)
Posts: 10

Posted:

The HOA Board attached a lien of property to a member's home in 2013 for non-payment of dues. To date, 2014 dues have not been paid and we just learned last week that the home is in pre-foreclosure. We are pretty confident that the member will go straight to foreclosure so we want to amend the existing lien (if possible) or file a new lien to include the 2014 dues. IF the home goes into full blown foreclosure would our lien(s) still be valid? Meaning, will we still get paid by the bank and/or buyer in order for the home to have a 'clean' title?

PitA1
Posts: 222

Posted:

you will be paid only IF the bank's lien (mortgage) is paid in full and there is enough cash from sale 'left-over'

if not

you have stopped the 'bleeding'

ps. the lien exists when the member did not pay

you merely RECORD the lien to make it a public document

you may update / re-record the lien at any time

PatriciaH4 (Texas)
Posts: 42

Posted:

I wouldn't bother to waste the time and expense filing another lien (especially if you have an attorney doing the work) as it will just cost more money, and if/when they get foreclosed, it will most likely have to be written off anyway as the mortgage company is superior to the HOA. At least in Texas it works that way.

RichardP13 (California)
Posts: 1,767

Posted:

Patricia

Once a lien has been recorded you do not have to update the dollar amount. What escrow will do is send a demand letter/notice to each of the lien holders prior to close of escrow.

If the home does go into foreclosure and sold at auction, the HOA lien most likely will not be paid. If it doesn't sell at auction and the bank put back into their portfolio, there is hope that terms can be negotiated with a buyer to include past assessments in the purchase price. It does take some creative salesmanship to accomplish, but I have seen it done.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Toria

Generally the mortgage holder(s) are what are called Super Liens. In a foreclosure the Super Lien holders get paid first. Rarely is there enough money left for others to get paid. The additional liens (paid or not) will be removed at settlement thus granting a clean title for a sale.

Now the debt (unpaid dues) is not wiped out in a foreclosure as it is in a bankruptcy. The debt is still owed so the association could go after such. This usually means hiring a law/collection firm which will want to be paid upfront with no guarantee any money will be collected. Thus many association do not pursue debt collection.

Always file liens just in case. No lien, no money no matter what happens.

Hope this helps.

BanksS
Posts: 403

Posted:

Quote:

Posted By JohnC46 on 06/04/2014 1:49 PM
Toria

No lien, no money no matter what happens.

Hope this helps.

Not necessarily true. Where I live, the BOD files small claims cases for the unpaid dues. Three homeowners were delinquent this past year and all paid up also owing late fees and court costs. The BOD never files liens.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Small claims suits aren't the best solution. It's usually chosen by those who don't know better and just assumes court is the way to handle such things. A small claims suit is a court judgment. It does not accumulate over time and one can simply sell and move without ever paying the amount owed.

A lien is also a court judgment but has more power. The person can not sell their home without paying. The lien also accumulates over time. The cost of filing can be free or with a lawyer. That money is also added onto the lien amount along with interest and late fees.

Most states do not allow the new owners to pay whatever the former owner owed even in the form of a lien. Florida is one of the few states that may be possible. Also a HOA does NOT want to own the foreclosed property nor do they want to foreclose if the bank is already doing it. A foreclosure at this point would be the banks work and the bank still gets paid first.

Former HOA President

RichardP13 (California)
Posts: 1,767

Posted:

Quote:

Posted By MelissaP1 on 06/04/2014 3:12 PM
Small claims suits aren't the best solution. It's usually chosen by those who don't know better and just assumes court is the way to handle such things. A small claims suit is a court judgment. It does not accumulate over time and one can simply sell and move without ever paying the amount owed.

A lien is also a court judgment but has more power. The person can not sell their home without paying. The lien also accumulates over time. The cost of filing can be free or with a lawyer. That money is also added onto the lien amount along with interest and late fees.

Most states do not allow the new owners to pay whatever the former owner owed even in the form of a lien. Florida is one of the few states that may be possible. Also a HOA does NOT want to own the foreclosed property nor do they want to foreclose if the bank is already doing it. A foreclosure at this point would be the banks work and the bank still gets paid first.

Melissa

You have no idea what you are talking about. I can not believe the things that you have written.

Small claims is not a bad idea at the onset of the delinquency. Still file the lien. A lien is NOT a court judgement. A court judgement is a judgment.

Please identify a state that does not allow new owners to pay the lien or part of a lien, or monies owed to an association. It is allowed in California, even as restrictive as it is. If properly executed, there is nothing wrong with a HOA foreclosing and owning the property to recoup delinquencies through the rental of the foreclosed property.

BanksS
Posts: 403

Posted:

Quote:

This is what works where I live and there was 100% collection of the money owed last year. When liens are filed and the property foreclosed on, according to many posters here, the HOA rarely sees any money. Money talks and BS walks.

LarryB13 (Arizona)
Posts: 4,099

Posted:

Quote:

Posted By PatriciaH4 on 06/04/2014 11:12 AM
I wouldn't bother to waste the time and expense filing another lien (especially if you have an attorney doing the work) as it will just cost more money, and if/when they get foreclosed, it will most likely have to be written off anyway as the mortgage company is superior to the HOA. At least in Texas it works that way.

You should never hire an attorney to record a lien. A lien does not become more official because it was prepared by an attorney and anyone can present a document to the county recorder. While there are times when your association must be represented by an attorney, this is not one of them. Not only is it a waste of money but it might not even be recoverable should you seek a judgment against the owner.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

People

I am not nor do I play a lawyer.

Let us keep in mind that these things can vary from state to state. In SC there is no such thing as Small Claims Court. We do have Magistrates Court (MC) which is very similar. In SC an association (no lawyer needed) can file to collect past dues in MC. The MC court procedure aside (it could get tricky as any court system can), if the MC makes a decision the dues should be paid and the decision is not honored within the time frame the MC sets then several things can happen including a lien and/or a warrant for the arrest of the person not paying as the MC ordered.

As an example, a bounced check in SC is considered a felony and an arrest warrant can be issued for such. In SC the law leans toward the business/corporation, not the individual.

Do not say a poster is incorrect if you do not know the law where they live.

LarryB13 (Arizona)
Posts: 4,099

Posted:

Quote:

Posted By MelissaP1 on 06/04/2014 3:12 PM

A lien is also a court judgment but has more power.

The Queen of Misinformation strikes again.

A lien is not a judgment. It is a unilateral claim that one person owes another money. The person against whom the lien is filed may challenge it in court. I am unaware of any law that payment of a lien is a condition of sale; most lenders, however, will require that the lien be paid as a condition of underwriting a mortgage or deed of trust.

RichardP13 (California)
Posts: 1,767

Posted:

Quote:

Posted By LarryB13 on 06/04/2014 8:46 PM

Posted By MelissaP1 on 06/04/2014 3:12 PM

A lien is also a court judgment but has more power.

Well said

TimB4 (Tennessee)
Posts: 21,059

Posted:

Although there are judicial liens, the type of lien an Association typically files is not a judicial lien.

For more information on the types of liens see Types of Property Liens from nolo law for all website.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

I still stand by that a small claims or whatever your state does similar is NOT the way to go. It is short sighted. If you win, it is just a big IOU. It does NOT guarantee you collections. One can simply move and never pay. It also costs more money to pursue in garnishing wages or repossessing something to satisfy the debt. Plus one has to have the social security number and know where one works. Both pieces of information is NOT required to be supplied to the HOA.

A lien accummulates over time until collected. One can not sell atleast in my state until the lien is satisfied. The new owner is not responsible for the old debt. Foreclosure does throw a wrinkle as the lien may just go out in the wash.

So when I say a lien has more power it is in collections. A lawsuit the owner can walk away and never pay a dime. It has to be renewed every 7 years or so to collect. How many new boards will be in place by then that will remember to refile and collect on an ex owner who sold years ago? A lien stays in place and accumulates with no need for social security numbers or personal info other than HOA address. Plus at sales time lien has to be paid for the sale to take place. A motivated buyer may agree to pay it off to get the property if you are lucky.

Former HOA President

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By MelissaP1 on 06/05/2014 1:21 AM

So when I say a lien has more power it is in collections. A lawsuit the owner can walk away and never pay a dime.

I disagree (or perhaps you simply mistyped).

As you stated, a lien is simply there until the house is sold and, in order to give a clean title, needs to be settled for the property to be sold. The only power a lien provides is the ability to foreclose, which, as you also pointed out, typically just stops the bleeding.

However, a judgement won in a legal action has far more weight. With a court judgement, the creditor can garnish wages, perhaps garnish tax refunds, perhaps lien personal property, etc. Yes, the creditor must go through additional hoops to utilize any of those collection methods, but the court judgement gives the creditor those options.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Only if you have a social security number, know their job place, or have their other outside HOA address if they do not live there. Information NOT required to give to a HOA. I am sure the one being sued is NOT going to provide that info.

I had to sue my former tenant for back rent and to evict. It cost me thousands of dollars and I was unemployed. It was going to cost a few hundred dollars to collect as they moved out of our county. He only had a post office box and not a mailbox. Can only deliver to mailboxes. The paperwork did not have his socialon it. He owned his own business. I was able to find a motorcycle or a dump truck in his name I could garnish. However, the value and sale price had to equal what he owed. If it was more, I had to pay him the difference or be sued.

So this is why I say a lien is much easier to file, is cheaper, and gives better chance of collection. I have forclosed on a lien. The cost was only $800 and the lien $400 to file. Took six to eight months and it was done. The bank foreclosed after and stopped our bleeding. In the end, even though lien not paid we were abe to apply a bandage. Other times we have liened or threatened lien and gotten paid. Never once threatening a lawsuit.

Former HOA President

FredB4 (Ohio)
Posts: 375

Posted:

The mortgage lender not only gets paid first but also gets the legal fees incurred during their foreclosure and that can add several thousand dollars, so getting paid for past dues in the current real estate market rarely happens in my experience.

In Ohio, if the bank puts the property up for auction it usually is also the one who buy it and that wipes out all debts on the property including any liens placed on the property. The good news in that case is that the bank is then responsible for the property and HOA fees from the date of sale. If the bank doesn't put it up for auction then they usually wait until just before the property is sold before changing title.

However, I believe there is some legal justification for placing a lien on the property if you are going to go after the owner through small claims court or garnishment of wages. We have only started looking into this option and I don't really understand the reasoning behind that or if it is worth the effort and expense.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Fred

We use a law/collection firm to help us collect unpaid dues. We asked them about pursuing unpaid dues as a debt owed after a foreclosure. They said they would have to have a $500 retainer to even look at the case and more to pursue it if it was worth pursuing. They also said there is no guarantee that they would collect anything.

Our dues are $600 per year. The worst anyone had bitten us (unpaid) has been $1,200. Our overall thinking has been it is not worth pursuing.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Exactly John, you have to weigh if it worth pursuing or stop the bleeding. Keep in mind a lawsuit does not mean you will get your court costs awarded. It has to be asked for and court awarded. Plusmcollection costs are associatec with pursuit of that award. It cost me $350 to garnish or to collect items. That is amount above the lawsuit costs. So factor in those costs when pursuing legal options. The lawsuit is only half the battle.

We have a 6 month we lien policy in place because that is the breakeven point for us. $50 a month are the dues with $20 late fee. We can add a 6% interest, lien filing costs and lawyer fees if applicable. The amount then accumulates over time. We then at a year look at foreclosure factors. A year gives a chance for the bank to foreclose and we save that expense. It stops the bleeding and hope new owners move in starting over again. We are not out much money in the long run.

If we sued instead that requires a lawyer as we are a corporation. There are filing fees. The amount does not accumulate over time. That means if it takes 3 months to go to court that is 3 months of unpaid dues not paid they get out of. Plus it does not mean we get paid at the end of the case. We have to spend energy and money to pursue and have long term memory. Plus the fact suing your HOA is suing yourself and your neighbors also means a HOA using its members money to pursue a lawsuit against a non contributing member could raise dues or require a special assessment. Not an option we choose.

Former HOA President

BanksS
Posts: 403

Posted:

Quote:

Posted By MelissaP1 on 06/05/2014 5:53 AM
Exactly John, you have to weigh if it worth pursuing or stop the bleeding. Keep in mind a lawsuit does not mean you will get your court costs awarded. It has to be asked for and court awarded. Plusmcollection costs are associatec with pursuit of that award. It cost me $350 to garnish or to collect items. That is amount above the lawsuit costs. So factor in those costs when pursuing legal options. The lawsuit is only half the battle.

We have a 6 month we lien policy in place because that is the breakeven point for us. $50 a month are the dues with $20 late fee. We can add a 6% interest, lien filing costs and lawyer fees if applicable. The amount then accumulates over time. We then at a year look at foreclosure factors. A year gives a chance for the bank to foreclose and we save that expense. It stops the bleeding and hope new owners move in starting over again. We are not out much money in the long run.

If we sued instead that requires a lawyer as we are a corporation. There are filing fees. The amount does not accumulate over time. That means if it takes 3 months to go to court that is 3 months of unpaid dues not paid they get out of. Plus it does not mean we get paid at the end of the case. We have to spend energy and money to pursue and have long term memory. Plus the fact suing your HOA is suing yourself and your neighbors also means a HOA using its members money to pursue a lawsuit against a non contributing member could raise dues or require a special assessment. Not an option we choose.

Small claims in Iowa does not require a lawyer. I was just saying what worked in my situation. The suits were dropped by the way because the delinquent members paid the filing fees, late fees, and the dues before the cases went to court. So it was a win for the association in this case. I'm not saying it will always turn out this way but getting paid was the goal and that goal was achieved without a lien.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By MelissaP1 on 06/05/2014 4:48 AM
Only if you have a social security number, know their job place, or have their other outside HOA address if they do not live there. Information NOT required to give to a HOA. I am sure the one being sued is NOT going to provide that info.

yes, these are the hoops I talked about. BTW, those things are typically easily obtained from other sources.

Quote:

Posted By MelissaP1 on 06/05/2014 4:48 AM

So this is why I say a lien is much easier to file, is cheaper, and gives better chance of collection.

But that isn't what you said which I was responding to. You said that a lien was more powerful than a court judgement when trying to collect. It certainly is easier, but it is not more powerful.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

I am not always saying lawsuits are not an option. That is a valid legal pursuit. However, I think people are not as educated in the other options of liens and forclosures. Plus why your documents choose those as the options for your HOA. Liens are a better option in many cases for a HOA if applied corectly. Foreclosures are a last resort stop the bleeding legal pursuit.

I find some HOAs are short sided and uneducated. They are volunteer run with only requirement being an owner. This is not trying to be an elitess or insult anyone. It is to address why ones HOA may feel like it is not being run fully functional. A cohesive and better run HOAs tend to look at different options and outside the box. I encourage people to ask questions and look at the good and bad of the options they choose.

I apologize for spelling issues. I am using a tablet to post while working on my laptop issues....

Former HOA President

FredB4 (Ohio)
Posts: 375

Posted:

Melissa - please enlighten us on what you feel some of those options are ?

Liens used to be a good option before the collapse of the housing market when homes were worth more than the mortgage. Unfortunately, that is often not the case anymore thanks to a lack of bank regulations and laws that favor the financial industry. Associations are now left with few real options for collecting delinquent dues.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

One simple tool is when a unit goes for sale, notify the listing realtor if there are any association liens. I have seen several cases where the realtor told the seller it would make the sale easier if they cleared such up and they paid up. This can be done with a simple phone call.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Options are still the same. Lawsuit, lien, or foreclosure. Blood from a turnip is still blood from a turnip. It's just how you apply the bandage and if you do before needing a tournequite.

Former HOA President

JoK2 (California)
Posts: 198

Posted:

Great discussion!

At the end of the day and in today's world, it should be no surprise as to the likely-hood of an HOA recovering past dues, whether by small claims or lien. That's the reality isn't? So then why would it be pursued?

Because outside of hopefully collecting, it is the message your sending to the rest of the HOA. So pursuing these debts should be done in the least costly way because it's also a "shot across the bow" for anyone who thinks the HOA doesn't have the legal weight to pursue. And although you can't say names, you can inform the HOA that you have x amount of unpaid assessments and this is the legal action that is being taken.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By JoK2 on 06/06/2014 5:51 AM
Great discussion!

At the end of the day and in today's world, it should be no surprise as to the likely-hood of an HOA recovering past dues, whether by small claims or lien. That's the reality isn't? So then why would it be pursued?

Because outside of hopefully collecting, it is the message your sending to the rest of the HOA. So pursuing these debts should be done in the least costly way because it's also a "shot across the bow" for anyone who thinks the HOA doesn't have the legal weight to pursue. And although you can't say names, you can inform the HOA that you have x amount of unpaid assessments and this is the legal action that is being taken.

JoK2

There are some of us that believe saying the names is generally legal but many do not like to do so. I advocate naming names.

KellyM3 (North Carolina)
Posts: 2,239

Posted:

Quote:

Posted By ToriaM on 06/04/2014 9:58 AM
The HOA Board attached a lien of property to a member's home in 2013 for non-payment of dues. To date, 2014 dues have not been paid and we just learned last week that the home is in pre-foreclosure. We are pretty confident that the member will go straight to foreclosure so we want to amend the existing lien (if possible) or file a new lien to include the 2014 dues. IF the home goes into full blown foreclosure would our lien(s) still be valid? Meaning, will we still get paid by the bank and/or buyer in order for the home to have a 'clean' title?

Toria,

If the bank is foreclosure, your HOA will never collect its dues. State law won't allow you to dock this person's paycheck should you chase him/her in court. So, your board should prepare to vote to write off the debt as a not collectible once you're sure the property is auctioned and is owned by the bank.

Liens and threats are no threat to people who are going to lose their homes to the bank.

SteveM9 (Massachusetts)
Posts: 3,699

Posted:

Quote:

State law won't allow you to dock this person's paycheck should you chase him/her in court. So, your board should prepare to vote to write off the debt as a not collectible once you're sure the property is auctioned and is owned by the bank.

While a North Carolina employer cannot withhold wages to pay to a judgment, once an individual’s wages are deposited in a bank account, they may lose their protection.

Quote:

Liens and threats are no threat to people who are going to lose their homes to the bank.

Not so in every case. Many people have strategically defaulted. Either buying another house and defaulting on the old one, or defaulting and buying another house 2 years later.

A court judgement may not be good today, but many years from now when the person gets back on their feet, they can repay it. If they want to go through bankruptcy to remove that debt, that is up to them.

StephanieH5 (Indiana)
Posts: 22

Posted:

I was told that in Indiana, if a lawyer files a lien, it lasts 6 years on record. If a non-lawyer files a lien, it only last for the year it was filed.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By StephanieH5 on 06/11/2014 5:50 AM
I was told that in Indiana, if a lawyer files a lien, it lasts 6 years on record. If a non-lawyer files a lien, it only last for the year it was filed.

I don't know if that is true or not. However, every State has different laws. Therefore, it's always important to check your applicable laws.

SteveM9 (Massachusetts)
Posts: 3,699

Posted:

Quote:

A court judgement may not be good today, but many years from now when the person gets back on their feet, they can repay it. If they want to go through bankruptcy to remove that debt, that is up to them.

Note: In some states judgements are good for 10 years and you can renew it for another 10. If the person doesn't file bankruptcy its likely a lot will change in their life and they will eventually get back on their feet. We all know your HOA will be around in 20 years, so its likely a good idea to continue collection of that debt. Most HOA debts are in the $2k-$5k range. Which is typically around the same price as a bankruptcy, so its unlikely someone will file bk based only on the HOA debt.

SheliaH (Indiana)
Posts: 6,964

Posted:

Quote:

Posted By StephanieH5 on 06/11/2014 5:50 AM
I was told that in Indiana, if a lawyer files a lien, it lasts 6 years on record. If a non-lawyer files a lien, it only last for the year it was filed.

I don't see why it makes a difference whether a lawyer or a non-attorney files the lien - I would think the law's the same. I do know the law changed a few years ago where a HOA can now proceed with a foreclosure 90 days after the lien has been filed. I think liens last for 7 years, but to be safe, check with your county recorder's office.

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

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