Forclosure and Past Dues

We are a community in Maryland and recently a house went in to foreclosure and I received a notice from the new "owner". As the treasurer, I have never actually gotten papers from a house in foreclosure, though we have had a lot go through this. I was reading the mailing and saw that they "claim" that they are only responsible for the past 4 months of unpaid assessments. Although this property in particular is current, we have many that are a few years in arrears. Is it true that they are only obligated to pay 4 months?

Usually, the owner is responsible for assessments from the date he/she buys the house, but you said the house is current - was this owner referring to the four months prior to the sale? Did the association have a lien against the house? Did you have an attorney taking legal action on behalf of the association - if so, you should be asking these questions of him or her.

In many cases, the debt to the association is a personal debt of the owner, so if the account wasn't settled at the time of the sale, you may still be able to go after the former owner, but how successful will you be? If the owner is history because of a bank foreclosure, there's a good chance he/she doesn't have much else left to pay you and the association may have to write off the account. You won't know until you file a lawsuit - if you can find them.

From what you've said, it doesn't sound like your association is doing anything on collections, especially if you have "many homes that are a few years in arrears." If you're the treasurer, why have you and the board let things escalate to this point? You should already have a collection policy that specifies what will happen if assessments aren't paid, and that should include legal action against the homeowner, up to and including foreclosure.

It's time to sit down with the association attorney - or a good collection attorney - to help you review your accounts receivables and determine what you need to do, as well as educate you on liens, foreclosures, etc., because the rules vary by state. Get some action going RIGHT NOW on the people who do owe the association because the longer you wait, the less likely you'll ever be able to collect, and that's not fair to the homeowners who are paying in full and on time. Once you develop a new policy or revamp the current one, make sure all the homeowners get a copy. Good luck!

In this case we had no need for a lien since they were current, but it makes me wonder about many other homes that are not current. The letter from the bank says they are responsible for 4 months from the time they take possession. The letter was vague but from my research online, it seems that this may only pertain to super liens in Maryland. I will approach the board to see how the want to handle people who are over due.

That depends on your state laws

A messy situation to be sure, but I have to say I do not weep for the banks at all. In too many cases, the association is left with nothing after a bank foreclosure. The banks drag their feet in completing the foreclosure and don't pay assessments (used to pay for the common area that helps the foreclosed house and the rest looking halfway decent). We don't have a super lien law in this state and even when the association is the first to file a lien of any kind, we're lucky if we get a few thousand out of the deal (I was treasurer of my association and saw this played out far more times that I want to count).

Reality check about HOA foreclosures: They are STOP BLEEDING ONLY actions. They are NOT profit making opportunities. The facts are this... A HOA is ONLY made up of owners. It is ONLY funded by it's members. Members = Owners. They are mostly (not all) non-profit. They are NOT charitable non-profit. You can't donate to them and get a tax deduction. Non-profit doesn't mean a HOA can't have extra money. Any extra money either has to be part of a savings type account(Capital expense savings) or subject to taxation.

Non-profit is in the context that a HOA is to collect enough funds from it's members to pay it's bills. It also may have a capital savings account for those down the road major expenses repairs such as roads, roofs, or other HIGH expense items. The money collected is divided evenly among ALL it's members. That is how your dues amount is determined.

A percentage of your dues also goes to cover for those who are NOT paying their dues. It's basically another bill your paying on someone's behalf. The more non-payers the higher your dues can go up. It also forces the HOA to do special assessments to cover expenses or special projects. It also costs money for the HOA to pursue collections. A lien can cost about $400 or more just to file. Foreclosure can cost up to a $1000 or more. All of that expense again comes from the HOA budget.

When a foreclosure step is taken it is the LAST RESORT effort for the HOA to collect the money it is owed. The court system ONLY makes one "Whole". It is is NOT for a profit. The money the HOA is aiming to make in a foreclosure sale is the exact money it is already out to get that money. It is money that has been taken out of YOUR pocket to cover for this person who refuses to put in their fair share.

So when you say the HOA should have another option or should NOT be allowed to foreclose? Why can't they have the SAME legal options every American citizen has to collect money? A bank takes back a house when no one pays their mortgage. If you were to sell a car to someone and they fail to make payments, YOU get to collect the car back. So why can't the HOA have the same right and option to collect back it's money that is basically coming out of their members pockets?

If your okay for paying more out of your pocket in higher dues to cover those who don't pay at all, by all means feel sorry for these people. I for one, am NOT one of those who thinks I should pay for free loaders and then have no options to collect because it's just "unfair and not right for a HOA to kick someone out of their house"....

I did forget the most important thing about foreclosures... They STOP immediately as soon as the debt is paid!!! Imagine that? You hear all these "victims" of HOA's having their homes take away by the big mean HOA. Well did you also hear them say they paid their dues? If they simply paid their dues or did not let it get out of hand, they would not be in foreclosure. I know of no HOA that does not offer to work with a homeowner or offer a payment plan.

There was a foreclosure I heard about a few years ago. The owner was fighting their HOA from foreclosing on their home. They had not paid their dues in over a year. They even had a renter in their HOA home. The owner claimed the HOA never sent them any notifications. They were unaware of the situation. Now keep in mind the HOA did indeed send them official notices. They even sent them to the house Registered mail. The owner tried to claim because they lived at another location the HOA was doing an "illegal" foreclosure. As you can guess that owner lost their case. The HOA was NOT responsible for tracking this owner down. They were to serve the paperwork to the HOA address of which the owner owned in their HOA. Plus it was no excuse on the owner's part to say they were unaware they were in a HOA and had to pay dues. This owner had gone to the media to report the HOA as a big bad wolf who took their house away... Does anyone else see a wolf blowing at their door taking their house away or a red riding hood crying wolf?

Amen....

LetA that is NOT how a foreclosure works at all. It's basically the opposite of that... If anything the HOA is lucky to even see a dime. The bank is paid first and foremost in a foreclosure. Does NOT matter if it is by the bank or the HOA. The HOA doing a foreclosure is mostly doing the work of the bank. The states do allow the "Super lien" ONLY puts the HOA on the SAME footing as the bank. It doesn't make them FIRST to get paid.

What happens when a HOA forecloses? First they must be without dues for 6 months. Let's say that is $600. It costs $500 to file a lien. The owner has to pay back $1100 to the HOA plus late fees/interest. Now the HOA waits a year for the owner to pay. The HOA (and owners) are now out $1700*. (*Leaving out late fees/interest for simple math). The HOA now has to pay a lawyer to proceed with the foreclosure process. Let's say that is $1,000. It takes about 3 to 6 months to process a foreclosure. Again that time period adds up to another $300 - $600 of unpaid dues.

Now the day of foreclosure sale comes up. The HOA does get the first bid. Which is a $1 over the amount OWED. So the HOA IF they wanted the home would have to pay out $1801 to $2101 at the auction. They basically would be out the money twice.... However, a HOA doesn't really want to own that home. If the bank is owed money, they have a piece of this too.

The HOA does NOT want to own this home. First off they had to pay out the $2101. Plus if the owner owed money on the home, the HOA would have to pick up the mortgage. They have to pay the taxes on the property. Any repairs needed would have to be paid. The HOA has to pay it's own HOA dues on the property. The monthly expenses on this home could be well over $1,000 and it's hopeful the home is even in good condition to sell never the less try to rent.... (Renters are NOT responsible for HOA dues).

Now add onto the fact that many states have "Right of Redemption". Meaning the owner can come back up to a year later to buy back the house. They have to pay back the money they owe plus any improvements made. Which means the HOA can NOT touch the house for up to a year!

Keep in mind this whole time the house has most likely sat empty. The HOA can't deny it's services if it offers lawncare. It also can't touch the home as they do not own it during this period of time. The HOA would basically be owning an abandoned piece of property that looks like crap for up to 2 years. If it's lucky, they could maybe sell it at a profit. However, most owners who aren't paying their dues aren't paying their mortgages. They also may have let the house go into foreclosure because they were under water in the first place.

So NO a HOA is NOT making a profit or is it an incentive for a HOA to foreclose to do so. It's just cutting out it's losses to limit the damage to the rest of the members... Hence stopping the bleeding ONLY...