Advice on foreclosure

Started by ThomasO5 • 18 replies • 870 views

💬 Join us to post & get advice from 50,000 HOA & Condo leaders.

⚡ Takes 30 seconds

Already a member? Log in

ThomasO5 (Texas)
Posts: 38

Posted:

We've taken a couple of homeowners to court and received judgments against each one. Now, we're getting ready for the foreclosure process, since they still refuse to pay.

Has anyone tried to use an arbitration process to facilitate a dialog to reach a negotiated settlement and thereby avoid the actual foreclosure? If so, how successful was it?

Any other thoughts about communicating with these homeowners or is it generally advisable to avoid contacting them altogether and let the lawyers handle it.

Thanks!
Greg

MelissaP1 (Alabama)
Posts: 13,836

Posted:

I have done a foreclosure. Which was done by foreclosing on a lien not by a lawsuit. Which a lawsuit is a judgment but not sure how process works in regards to foreclosure. We foreclosed on a lien. So not sure what process you followed. I would never sue for back dues due to many complications that causes. Which is collection options mostly.

Anyways, a foreclosure STOPS as soon as the money owed is paid. It's as simple as that. Some states even if you do foreclose there is a "Right to redemption" period up to a year. Which means the owner can pay back the money owed plus foreclosure costs, and possible improvements then house goes back to them. So even if one forecloses there is a waiting period before even the new owner can touch the property without risk.

Foreclosure is a STOP the BLEEDING step. It is NOT a money making one. You also never foreclose on a house if money is owed to the bank. If the bank is doing a foreclosure, then don't foreclose. Your doing the work of the bank. The bank still gets paid first. (Unless you live in a state that allows "super liens" which puts the HOA on equal footing).

So understand your goal at this point. There is nothing wrong with keeping a lien on a home if done properly. Plus kept updated. A lien accumulates and includes legal fees when house is to sell. (A lawsuit judgement may not do this). If your not comfortable with taking someone's house away for non-payment. Some HOA's don't feel comfortable with this option.

Your HOA should have a policy in place in regards to liens/foreclosure that is understood. We have a 6 months we lien. 1 year we CONSIDER foreclosure. If owner's understand there is a line, they may be more likely to pay up or get out. It also helps enforcing payments and weeding out bad apples. I'd recommend adopting a policy that will work for your HOA. Mine was just an example what works for ours.

Send notification certified mail to the HOA address. If they don't live there, then send a courtesy letter detailing the actions the HOA is taking. The official address is the HOA address. That is what would concentrate most in legal steps like certified mailings. Can do both but if saving money, the HOA address should be enough.

Letting the lawyer deal with this costs the HOA money. So send letters notifying them of your new collection policy and status of their account. Let them know their options of paying up before you go do them. Maybe you will get lucky to set up a payment plan or they put up a for sale sign.

Former HOA President

MarkM19 (Texas)
Posts: 1,459

Posted:

Thomas,
I have gone through the process a few times in Ca. It is a long and delayed process but if it goes all the way to foreclosure you can expect the Lender to step in and take the house at the last moment. Once that happens then they are responsible for the dues.

I have found two types of debtors. The ones that owe everybody and have given up. This type is futile to try and do any arbitration is a total waste of time, energy and money. The second type is the ones that just hate HOA's and don't pay the dues out if spite. These people need to be pushed to the edge before they budge and arbitration can help. My experience with both of these types came between 2008 and 2015 when the housing crisis was at it's peak.

I am finding Texas has some different rules and restrictions that I am still learning. I look forward to hearing what others contribute hear.

KellyM3 (North Carolina)
Posts: 2,239

Posted:

Quote:

Posted By ThomasO5 on 03/02/2019 10:35 PM
We've taken a couple of homeowners to court and received judgments against each one. Now, we're getting ready for the foreclosure process, since they still refuse to pay.

Has anyone tried to use an arbitration process to facilitate a dialog to reach a negotiated settlement and thereby avoid the actual foreclosure? If so, how successful was it?

Any other thoughts about communicating with these homeowners or is it generally advisable to avoid contacting them altogether and let the lawyers handle it.

Thanks!
Greg

Thomas,

You've been given great advice.

Your HOA has no reason to negotiate w/ owners unwilling to keep their contractual obligations, provided (in my opinion) there isn't some substantial reason they haven't been paying and a better reason why they've not let the HOA know of a true hardship.

I think arbitration would end up w/ more non-payment and would complicate your efforts to actually collect dues using the lien enforcement standards.

JanetB2 (Colorado)
Posts: 4,219

Posted:

If you already have lawyers involved you need to let them handle the situation. Also, do your documents or state statutes require Arbitration??? Some docs and states require arbitration so you need to check ...

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By ThomasO5 on 03/02/2019 10:35 PM

Has anyone tried to use an arbitration process to facilitate a dialog to reach a negotiated settlement and thereby avoid the actual foreclosure?

The time for that was before the court case.
Obviously, they don't want to or can't pay.

Quote:

Posted By ThomasO5 on 03/02/2019 10:35 PM

Any other thoughts about communicating with these homeowners or is it generally advisable to avoid contacting them altogether and let the lawyers handle it.

Start the foreclosure process.
Don't expect to be paid in full.
The goal is to stop the bleeding.

ThomasO5 (Texas)
Posts: 38

Posted:

Thanks to everyone for your thoughts. Looks like arbitration is now off the table since we're already into the court process.

I did have some follow up questions.

@MelissaP1, I'm confused by "foreclosing on a lien not by a lawsuit. My understanding is that we are using a lawsuit to pursue foreclosing on the lien, automatically created by the HOA when the homeowner refuses to pay.

So, I don't understand what is meant by that? How would an HOA foreclose on a lien without using a lawsuit to do that?

Thanks for your help!

MelissaP1 (Alabama)
Posts: 13,836

Posted:

You never had to sue in the first place to collect. Don't know who told you that information. A HOA can lien for non-payment. It doesn't have to file a lawsuit. A lawsuit yes is a "Judgement" but it holds little to no teeth. Filing a lien prevents a person from selling their home until the owner pays their debt.

By pursuing your lawsuit avenue, you are not foreclosing on a lien. Which is how I believe one does in the foreclosure process. Your foreclosing on a "lien". A lawsuit/judge ruling do not think you can foreclose on that without converting it to a lien. There are other methods of collection for lawsuits. Which again pursuing payback on a lawsuit is more difficult for a HOA as they are NOT required to have the social security # of the owners/member. So collecting by reporting to credit agency or deducting from a check is a bit different route.

Talk to a lawyer about the difference between a lien and judgement on how to collect. It's something should have discussed before going through the lawsuit. Which may want to switch lawyers if they did not tell you this information.

Former HOA President

ThomasO5 (Texas)
Posts: 38

Posted:

Thank you, MelissaP1. I'm now learning about the world of non-judicial foreclosure which I didn't know existed.

I am still confused about: 'By pursuing your lawsuit avenue, you are not foreclosing on a lien. Which is how I believe one does in the foreclosure process. Your foreclosing on a "lien".'

What is the difference between a lien and a "lien"?

Nonetheless, if I understand this, does this mean that the only thing board members need to do is fill out the correct paperwork and file it to trigger the actual foreclosure sale with a subsequent distribution of proceeds to lien holders automatically?

MelissaP1 (Alabama)
Posts: 13,836

Posted:

You need to contact a lawyer about this. Some states require an attorney to file lien paperwork. You may also be able to use a legal service to file as well.

I am not quite sure what you all have in regards to a "judgement". A lien is a form of judgement. A lawsuit judgement I am not sure how/if can be converted to a lien. I am not a lawyer.

It takes time for a lien to process. You can't just file a lien and then foreclose on it the next day. I believe it is a 3 months of public posting/notification of a lien. Once it is foreclosed on, that can be another 3 months. Plus you have the right to redemption process that can take up to a year in some states.

Your HOA most likely followed a misconception on how to collect unpaid dues. Lawsuits are not a HOA's friend necessarily. I would recommend consulting an attorney who won't tell you to file a lawsuit. Plus be careful of one that responds "I will do whatever you want me to do" without them discussing options. Don't put one on "retainer". You most likely never need one. (Lawsuits and retainer is just sexy lawyer talk on TV/Movies IMO).

Don't hire a Real Estate attorney either. Your not dealing with Real Estate. You can use a general lawyer for filing liens. HOA attorney's can be expensive for their specialty. Filing a lien isn't something a specialist is needed for.

Former HOA President

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Also understand that Foreclosure is nothing more than a "Stop the Bleeding" measure for your HOA. It most likely will not make your money back. It definitely won't make your HOA a "Profit". Your lucky if you get the person to pay to end the foreclosure. Otherwise, your HOA just gets the non-paying person out of the HOA with hopes of getting a new owner who pays dues to move in. New owner is not responsible for previous owner's debts except in a few states like Florida.

The bank always gets paid first and foremost. So if the bank is already foreclosing, then don't even begin the foreclosing process. Just keep the lien on it. You also need to make sure the people are not ACTIVE military. There may be some laws in regards to foreclosing on ACTIVE military members.

The HOA also does NOT want to purchase this home!!! I can not repeat that enough. At foreclosure, the first bid goes to the HOA. The HOA does NOT want to own any houses it forecloses on. The HOA is on the hook for mortgage payments (if any), HOA dues, maintenance, repairs, and associated costs of owning a home. Plus still subject to the redemption period. The HOA is also out the foreclosure money.

So do NOT go into the foreclosure idea/actions not understanding its a STOP the BLEEDING step ONLY. Anything after that, your HOA is going to bury itself in it's own debt and taxes.

Former HOA President

ThomasO5 (Texas)
Posts: 38

Posted:

We definitely have no interest in buying any of those homes we foreclosed on, so we don't need to worry about those issues.

Our attorney specializes in HOA law, so yes definitely not a real estate lawyer.

Thanks to the booming real estate market, the recent few years have nearly doubled property values around here.

So wouldn't that bode well for getting 100% of the judgment amount? Why would we get less if the house sells for anywhere close to market value?

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Your not getting the money from a home sale. Your getting the money back for what they owe and legal expenses to collect. The HOA doesn't own the home. The bank or owner does. They would be the one who would get the money if sold.

Let me explain... I had a renter who did not pay rent for 5 months. Was able to finally kick him out. He owed me about $2500. He owned a motorcycle worth $5K which I could acquire to pay off my debt. Now if I sold that motorcycle for $5K (What is it is worth) then I ONLY get the $2500 and he gets the rest of the money. I am ONLY entitled to the money owed to me.

Foreclosure is similar. The HOA is collecting against the "collateral" which is the house. So it collects only what it is owed. If the bank is owed money, then they get paid off first at the sale. Whatever is left then goes to the HOA and other debtors if any.

So when we say it's a "Stop the Bleeding". The HOA is no longer wasting time, energy, and money in collecting a bad debt. Plus get the opportunity to get a new owner who does pay.

Former HOA President

MelissaP1 (Alabama)
Posts: 13,836

Posted:

If you mean, if the HOA owns the house at the foreclosure, why bad idea with home values so high? Consider the HOA would be paying the foreclosure cost to itself. If there is a mortgage on the home, they HOA would have to pick that up. The HOA would also have to pay the HOA dues. Plus there is insurance, taxes, utilities, and repair costs. This would be for atleast a year before it could sell the home. Can your HOA afford upwards to $2K a month to support a home?

Plus if you sell the home after the redemption period, the "profit" is taxable. So your HOA would be responsible for paying the taxes on the sale. Since your HOA is most likely a non-profit corporation that extra money would need to be filtered into maybe reserves or cover other expenses. It would NOT be going into any member's pockets.

So no it is not good to be landlord or owner of a HOA home that's been foreclosed on. Unless your HOA can afford and wants to be a landlord....

Former HOA President

ThomasO5 (Texas)
Posts: 38

Posted:

Yes, I understand that the bank is the first lien holder. The bank therefore, does indeed get paid first. Let's use example numbers.

Let's say the house is worth roughly $225k and it sells at auction for $190k. Suppose the bank is owed $80k. Doesn't that leave $110k to satisfy the remaining lien holders?

If that's the case and the homeowner owes the HOA $7000, and there are no other lien holders, is there a scenario where the HOA would not get fully reimbursed the $7k that is owed to the HOA since there is approx. $110k left over after satisfying the bank?

MelissaP1 (Alabama)
Posts: 13,836

Posted:

In a perfect world most likely not. The owner would get 103K anf HOA 7K. Plus they lose their house and have a foreclosure on record.

We are dealing with reality. Someone not paying dues is most likely not paying other bills. If they are not just refusing to pay dues out of anger or protest. Plus who is going lose a 200K house over a 7K debt?

HOA foreclosure is never a money making scenerio. Plus got to remember there are als tax foreclosures. What if they are not paying taxes and have a tax lien? They still pay mortgage? That too trumps debtors. Taxes and death assured.

Former HOA President

MelissaP1 (Alabama)
Posts: 13,836

Posted:

I was using my tablet in my previous reply and we had a fight...

It really depends on why the person is not paying their dues. This is why we have a policy of 6 months we lien and 1 year CONSIDER foreclosure. We pay monthly so at 6 months that is about equal to the legal expenses for filing a lien. That is the break even point for us. It can differ with each HOA.

Have found those who know at 6 months they get a lien weeds out your bad apples and those in financial trouble. It also may show those who are just ignorant of HOA existence or responsibility to pay HOA dues. This scenario happens more than you think in a HOA. Following the proper lien process usually notifies them in 6 months time period to make amends. Those in financial issues will approach the HOA and make a payment plan with the HOA. One of our plan options is that we may wave the late fees or they can pay dues and a half the month they can afford to pay. Eventually paying the dues and a half will catch them up but maybe not in the 6 month period. It will help them out on avoiding a lien for additional time.

Now those who just refuse to pay out of anger/protest are usually able to afford to pay their dues. They are not in danger with other debtors. Their mortgage and tax bill is paid up. The reason for our 1 year CONSIDERATION of a lien is because it takes about 1 year before the other debtors start foreclosing. If they pull the trigger, then we are not. If they are already in trouble with bank/taxes then we just keep the lien active. We figure they aren't going to pay us and in deep financial trouble. However, those who are angry/protesting refusing to pay their dues, we are not so forgiving. We do lien and will foreclose.

A foreclosure does STOP as soon as the money owed is paid. It's that simple. They can even pay the amount owed up to the time the auction hits the steps. So I see it as their own fault at this time for losing their home over something so petty. Keep in mind that ONLY unpaid dues are used for foreclosures. So don't factor in fines.

Foreclosure is a long process and doesn't necessarily get you a dime. I would do it all over again no doubt in our situation. (Owner was ripping off renter and protesting paying our dues etc...) Just don't go into this without understanding it's a time consuming and stop the bleeding step for your HOA.

Former HOA President

ThomasO5 (Texas)
Posts: 38

Posted:

Thanks for all the information, Melissa. I appreciate it!

ThomasO5 (Texas)
Posts: 38

Posted:

Thanks for all the information, Melissa. I appreciate it!

🎯 You've read this entire discussion

Join the conversation with 50,000 HOA & Condo Leaders:

✓ Ask follow-up questions
✓ Share your experience
✓ Get expert advice
✓ Access 350,000 discussions

Create Free Account →

⚡ Takes 30 seconds

Already a member? Log in here