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Foreclosures- Arizona

Started by DouglasM6 • 8 replies • 871 views

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DouglasM6 (Arizona)
Posts: 724
Posted:
We have a meeting tomorrow morning to discuss foreclosure of a property for non payment of assessments. Thought I'd start a thread here to post what I learn as we go into this process.

Some of my preparing led me to this site:

http://www.shawlines.com/documents/2017-Summary-of-Arizona-Homeowner-Association-Law.pdf

Arizona Revised Statutes §33-1256 (the Arizona Condominium Act) and A.R.S. §33-1807
(the Arizona Planned Community Act) define what charges constitute an Association’s lien and its
rights to foreclose. For example, A.R.S. §33-1807 of the Planned Community Statute, which, in
relevant part mirrors A.R.S. §33-1256 of the Condominium Act, provides:
The association has a lien on a unit for any assessment levied against that unit from the
time the assessment becomes due. The association's lien for assessments, for charges
for late payment of those assessments, for reasonable collection fees and for
reasonable attorney fees and costs incurred with respect to those assessments may be
foreclosed in the same manner as a mortgage on real estate but may be foreclosed only
if the owner has been delinquent in the payment of monies secured by the lien,
excluding reasonable collection fees, reasonable attorney fees and charges for late
payment of and costs incurred with respect to those assessments, for a period of one
year or in the amount of one thousand two hundred dollars or more, whichever occurs
first. Fees, charges, late charges, monetary penalties and interest charged pursuant to
section 33-1803, other than charges for late payment of assessments are not
enforceable as assessments under this section. If an assessment is payable in
installments, the full amount of the assessment is a lien from the time the first
installment of the assessment becomes due. The association has a lien for fees,
charges, late charges, other than charges for late payment of assessments, monetary
penalties or interest charged pursuant to section 33-1803 after the entry of a judgment
in a civil suit for those fees, charges, late charges, monetary penalties or interest from a
court of competent jurisdiction and the recording of that judgment in the office of the
county recorder as otherwise provided by law. The association's lien for monies other
than for assessments, for charges for late payment of those assessments, for reasonable
collection fees and for reasonable attorney fees and costs incurred with respect to those
assessments may not be foreclosed and is effective only on conveyance of any interest
in the real property.
SheliaH (Indiana)
Posts: 6,964
Posted:
I was treasurer of my HOA board and saw more foreclosures that I care to remember – here are some practical observations and tips, for what they’re worth:

Foreclosures are the nuclear option – you go to this when you’ve tried everything else. Make sure those efforts have been well documented.

Bankruptcy filings are a pain in the ass because they stop ALL collection efforts (like foreclosures) until the judge sorts it out. Some of them will give the homeowner chance after chance after chance, so I would suggest someone from the board also go to the hearing to speak up on the association’s behalf (the court documents don’t always tell the store behind the unpaid bills). I had to do that in the case of a lady who filed chapter 11 not once, not twice, but three times – and eventually, they all got tossed because she’d promise to pay and never did.

We had a bank that did pay off the homeowner’s delinquent balance after we said we’d suspend the sheriff’s sale. I and our attorney said show us the money first and we’ll stop, but I was outvoted by the rest of the board. It took them another two or three weeks to ante up. Moral of the story – settle nothing unless someone comes up with some sort of check and it clears first

As others have said, foreclosure is more of a stop the bleeding process, so be prepared to eat some, if not all of the money owed, especially if the mortgage company starts a foreclosure first. All they care about is getting whatever they can for the house and you won’t get paid until then. If there’s no money left, you’re SOL. At least the deadbeat is gone – I used to say as much as I hated seeing an empty house (which creates another set of problems), I didn’t appreciate people living in the community still getting their grass cut and sidewalk shoveled without paying their fair share.

On the other hand, the debt remains with the homeowner, even if the house is gone, so you can keep making his/her life miserable with lawsuits. However, if they don’t have any way to pay, it’s tossing good money after bad This is why I’ve heard some HOAs have filed a 1099-C with the IRS for that amount. You can’t go after the money when it’s filed, but it’s considered income to the homeowner and thus taxable. I spoke to our attorney about this, but left the board before there was any more discussion, so I don’t know what they’re doing now. If you’re interested, talk to someone well versed in IRS stuff.

You can go after out of state homeowners, but the process varies by state, it’s expensive and you still don’t have any guarantee of success.

Hopefully you’ll never had a volume of foreclosures like we did (I think they’ve finally calmed down after 10 years!), but if you do, you may need to review your bad debt line item periodically and adjust it for your annual budget – makes the budget more realistic.

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius
LetA (Nevada)
Posts: 2,679
Posted:
HOA Foreclosures here in Nevada are such a mess, some HOA's put off doing them, while others have been caught with their pants down.

At issue here in Nevada is weather or not the bidder/ buyer gets a clear clean title to the home. Some bidders/ buyers have been left in limbo because either the banks or the
county recorder won't release the title, leaving the new bidder/ buyer left to "rent" the property they purchased.

The issue has been where HOA's foreclose on unpaid assessments, usually around $3000.00 Then tack on the legal fees and interest, that balloons to about $15,000.
The HOA forecloses on the 15k and at auction the house sells for $20,000 when the house is worth $230,000.00 and the foreclosed upon owner has a mortgage with a $180,00.00 payoff. The bank needs to be paid, the foreclosed upon owner needs to be made whole, and all the HOA did was sell at auction a $230,000.00 house for $20,000.00
Tell me that's fair.
DouglasM6 (Arizona)
Posts: 724
Posted:
From what I learned, if we foreclose the primary mortgage would be paid first and us secondly. We would have to hope the home has enough equity to cover all three; the primary, the HOA and the legal fees. I showed the documents I have on the property (all public) and we believe there would be plenty of equity. The lawyer cautioned against it because of the possibility of forcing a bankruptcy. He said if they file bankruptcy they would be free of the arrears, their legal fees, etc. and that we would still be on the hook for his fees. Since we are a small HOA with no real reserves to speak of, he is against it.

This resident is well over 6K in arrears. We have done a lot to try to get them to pay their assessments. For me, it's time to risk it and foreclose. The other board members do not agree. So, we'll see.

We did get some great info and suggestions for late fee schedule. We do not have one. We also talked about fining schedule, but I hesitate to go down that road.

So, not much to report.
SheliaH (Indiana)
Posts: 6,964
Posted:
Well, life ain’t fair. You may think the house is worth $230K and perhaps it is, but someone has to buy it at that price for that to mean anything – thus you get $200K houses selling for $20K. There’s also a question of what’s in the house – some people trash the place big time when they’re about to be kicked out. I once read one case where the owner let a bunch of pigs run wild and crap all over. And then we have the people who rip out the copper pipes to sell – that’s one way to drop a house’s value.

As for the foreclosed owner, I’m not sure what you mean by making him/her “whole.” If they want to stay in their house, they need to work with the association and the bank to figure out how to stay in the house. It does seem unfair when a $3000 debt balloons into a $15K monster from legal fees and interest, but lawyers don’t work for free. If you have to hire a skip tracer to find the owner and any assets, that can be time-consuming and it’s not free either.

This is why we always said to our homeowners it’s best that you work with us because we have to pay out this fees before getting reimbursed. As a former treasurer, I had no problem working with people who were honest with me. You keep ignoring the association’s letters and pretty soon, you won’t know what to do when you get served with a summons (by then your options may be pretty limited).
In some cases, the math just won’t work, so the best thing to do is to settle to the best of your ability so everyone gets something. Your credit may stink for a while, but only a little while, it seems. A friend who worked for a mortgage company told me she saw people who lost their houses and were able to get another one two years later.

You’re correct the banks drag their feet on clearing title (depending on what’s going on in your county, the recorder’s office may be backlogged in processing the new title and/or are just as befuddled as everyone else as to who owns the damned house). In my community, we had to contend with banks who’d start the foreclosure, but not finish it for months on end, leaving the association and everyone in limbo (except the homeowner, who usually left, never to be found). The bank would finally get moving when it found a buyer and naturally, the sales price was never enough to pay off the remaining mortgage and unpaid assessments - which continued to accumulate during the limbo period. We were lucky if we got anything.

I think that’s why some states established those superlien laws, where the HOA can take precedence (assuming they were the first with getting their paperwork filed). Mortgage companies don’t like it, which is why it hasn’t caught on in many other states. – of course, the house never sold for enough money to pay the remaining mortgage and unpaid assessments (still accumulating after months in limbo) and the association was lucky if they got anything.
If it is not right do not do it; if it is not true do not say it. Marcus Aurelius
DouglasM6 (Arizona)
Posts: 724
Posted:
I think the home would sell at or near the county's appraisal figures. Which is normally lower than the actual value of the property. I did take into consideration that the home is old, probably would not pass an inspection for FHA, so it would have to go to an investor. But still, I'm sure there is plenty of equity in the home to make the foreclosure work. We are going to try some other tings first though.
MelissaP1 (Alabama)
Posts: 13,836
Posted:
I would not assume equity into a home ever. The home we foreclosed on the owner had a 2nd mortgage on the home. They had a renter. The renter was to have had a "Rent to Own" contract. It turns out the owner was basically having the renter pay their 2nd mortgage payment. They still owned the Title on the first mortgage.

The renter eventually sued the owner for over $10K because the owner had evicted them due to our foreclosure. The owner had in addition tried to make the renter pay their back dues owed. It also appeared the owner had no intention of turning over the Title even after their 2nd mortgage was paid off.

So you do not know if the owner does have multiple mortgages. You can't gauge a home value by looking at it. You can just assume what you may pay for it. The home may just sell for what is owed on the home. Which can vary from nothing to as if it was new depending on the debt load of the owner.

A foreclosure is a stop the bleeding measure. The size of that Band-Aid you put over that wound varies to many different factors. You may get a band aid that fits the wound or you may get that annoying little round Band-Aid that falls off...
Former HOA President
DouglasM6 (Arizona)
Posts: 724
Posted:
Quote:
Posted By MelissaP1 on 01/23/2018 3:33 PM
I would not assume equity into a home ever. The home we foreclosed on the owner had a 2nd mortgage on the home. They had a renter. The renter was to have had a "Rent to Own" contract. It turns out the owner was basically having the renter pay their 2nd mortgage payment. They still owned the Title on the first mortgage.

The renter eventually sued the owner for over $10K because the owner had evicted them due to our foreclosure. The owner had in addition tried to make the renter pay their back dues owed. It also appeared the owner had no intention of turning over the Title even after their 2nd mortgage was paid off.

So you do not know if the owner does have multiple mortgages. You can't gauge a home value by looking at it. You can just assume what you may pay for it. The home may just sell for what is owed on the home. Which can vary from nothing to as if it was new depending on the debt load of the owner.

A foreclosure is a stop the bleeding measure. The size of that Band-Aid you put over that wound varies to many different factors. You may get a band aid that fits the wound or you may get that annoying little round Band-Aid that falls off...

I never used the word "assume". It is very easy to "know" if the person living there is a renter or the owner. It is also very easy to "know" if there are multiple mortgages on a property. All of that is pretty much public if you know where to look. The HOA lien takes precedent over the second, third, fourth, etc anyway. Only the primary lien takes precedent over the HOA lien.

Yes, the "rent to own" contract holds the owner liable if the home is foreclosed upon and the original owner loses the home. That is not an HOA's issue. The titled owner is who the HOA deals with.

Yes, a foreclosure stops the bleeding. Thank you.

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