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Revenue from HOA Foreclosure

Started by NpB • 14 replies • 321 views

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NpB (Arizona)
Posts: 605
Posted:
In an HOA that I am a member of, I learned though publicly recorded documents that the HOA obtained a judgement to foreclose on a unit and that the unit will be sold by the county at a public auction. The order states the proceeds from the sale will be used to satisfy the judgement amount (unpaid assessments plus interest). Based on current real estate market conditions, there will most likely be a great excess between the sale price of the unit and the amount to satisfy the judgement. What happens to the excess amount realized from the sale? Does it go to the HOA?
MaxB4
Posts: 3,513
Posted:
Payment will be done based on priority of liens. The HOA lien may or may not have much priority.
JohnC46 (South Carolina)
Posts: 14,265
Posted:
NpB

As said, your HOA may get nothing. The most it will get is back dues which could include penalties, fees, etc. but generally expect little. Many of those in financial trouble owe more then they have thus some do not get paid.
AugustinD
Posts: 3,698
Posted:
Quote:
Posted By NpB on 03/24/2022 1:01 PM
In an HOA that I am a member of, I learned though publicly recorded documents that the HOA obtained a judgement to foreclose on a unit and that the unit will be sold by the county at a public auction. The order states the proceeds from the sale will be used to satisfy the judgement amount (unpaid assessments plus interest). Based on current real estate market conditions, there will most likely be a great excess between the sale price of the unit and the amount to satisfy the judgement.
Here's my take.

Short Answer:
In Arizona after all liens are satisfied (including liens for attorney fees?), the owner whose home was foreclosed gets the excess.

Long Answer:
Discussion of lien priority in Arizona, with attention to what it means for an Arizona HOA foreclosure, appears at:

https://www.nolo.com/legal-encyclopedia/arizona-hoa-foreclosures.html

From the link above:

"An association's lien is prior to all other liens, except for:

-- liens recorded before the declaration

-- liens for real estate taxes (and other governmental charges), and

-- a recorded first mortgage, a seller's interest in a first contract for sale recorded before the association lien, or a recorded deed of trust. (Ariz. Rev. Stat. § 33-1807(B), § 33-1256(B)).

So, a foreclosure by an HOA or COA usually won't eliminate a first mortgage or deed of trust because the association's lien is normally lower in priority.

After all the liens are paid off (including I imagine lien for attorney fees), who gets the excess? These sites indicate the owner, whose home was foreclosed, gets the excess:

https://www.azlawhelp.org/articles_info.cfm?mc=3&sc=20&articleid=264

https://clsaz.org/wp-content/uploads/2019/10/housing-foreclosure-excess-proceeds-191009-3.pdf

Chatter about how the attorney fees add up to such large amounts that sometimes (or often?), attorneys are pursuing foreclosure just so the attorneys can get paid what is owed them:

https://www.azcentral.com/story/news/local/arizona-investigations/2017/09/14/phoenix-area-homeowners-associations-foreclosing-record-number-homeowners/595816001/

MelissaP1 (Alabama)
Posts: 13,836
Posted:
Worst Idea ever for the HOA to own foreclosed property. A foreclosure is only done to stop the bleeding. It isn't for profit. It is get the money owed back and then hoping new owners start paying dues properly. It also is a process that can take over a year. Some states have the right of redemption. That means the owner can buy back the property up to a year after the foreclosure sale if they pay what they owe.

Even if the HOA "profitted" by owning it, there are taxes, maintenance, HOA dues (still have to pay), house payments, the price of paying off the foreclosure at the sale (Paying your own debt), and other house expenses. (utilities, water etc..). Does your HOA want to be a land lord? Plus the profit just will be ate up by taxes and realtor expenses.

Believe me, I have done a foreclosure. It's not worth it for the HOA to own it.
Former HOA President
MaxB4
Posts: 3,513
Posted:
And when property is sold at the courtroom steps, how many people are actually looking out for what the owner gets. If I were to bid, I am not looking at a sales price, I am looking at a investment price, where as the purchaser I make the profit, not the owner or bank.
MaxB4
Posts: 3,513
Posted:
Quote:
Posted By MelissaP1 on 03/24/2022 2:55 PM
Worst Idea ever for the HOA to own foreclosed property. A foreclosure is only done to stop the bleeding. It isn't for profit. It is get the money owed back and then hoping new owners start paying dues properly. It also is a process that can take over a year. Some states have the right of redemption. That means the owner can buy back the property up to a year after the foreclosure sale if they pay what they owe.

Even if the HOA "profitted" by owning it, there are taxes, maintenance, HOA dues (still have to pay), house payments, the price of paying off the foreclosure at the sale (Paying your own debt), and other house expenses. (utilities, water etc..). Does your HOA want to be a land lord? Plus the profit just will be ate up by taxes and realtor expenses.

Believe me, I have done a foreclosure. It's not worth it for the HOA to own it.

Actually, if done the right way, in the right circumstances, it can be profitable. We did it on 2 properties and paid off 5 properties debt totaling $125K. I do realize that might be way over your head.
MelissaP1 (Alabama)
Posts: 13,836
Posted:
I am not saying it isn't profitable Max. It's that your HOA is a Non-profit corporation. That profit comes at a cost. Unless that house has no money owed on it, your looking at house payments, HOA dues, maintenance/repair costs, and all the legal expenses involved. Plus you may not be able to sell it for a year in some states... How many HOA's can afford all of that out of their dues?
Former HOA President
MaxB4
Posts: 3,513
Posted:
Quote:
Posted By MelissaP1 on 03/24/2022 3:53 PM
I am not saying it isn't profitable Max. It's that your HOA is a Non-profit corporation. That profit comes at a cost. Unless that house has no money owed on it, your looking at house payments, HOA dues, maintenance/repair costs, and all the legal expenses involved. Plus you may not be able to sell it for a year in some states... How many HOA's can afford all of that out of their dues?

The profit is offset from the loss being written off.
MaxB4
Posts: 3,513
Posted:
Quote:
Posted By MelissaP1 on 03/24/2022 3:53 PM
I am not saying it isn't profitable Max. It's that your HOA is a Non-profit corporation. That profit comes at a cost. Unless that house has no money owed on it, your looking at house payments, HOA dues, maintenance/repair costs, and all the legal expenses involved. Plus you may not be able to sell it for a year in some states... How many HOA's can afford all of that out of their dues?

HOA's are a Not-for-Profit organization. We set rent at $3000.00 per unit and paid a company 6% rental commission. We paid HOA dues of $140.00 per month out of the $280.00 we made on the rental. Didn't pay a dime on mortgages or taxes. Had the two on the books for three years and made enough to upkeep and pay down $125K of debt. Again, thought it would be over your head.
KyleN2 (California)
Posts: 2
Posted:
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KellyM3 (North Carolina)
Posts: 2,239
Posted:
Quote:
Posted By NpB on 03/24/2022 1:01 PM
In an HOA that I am a member of, I learned though publicly recorded documents that the HOA obtained a judgement to foreclose on a unit and that the unit will be sold by the county at a public auction. The order states the proceeds from the sale will be used to satisfy the judgement amount (unpaid assessments plus interest). Based on current real estate market conditions, there will most likely be a great excess between the sale price of the unit and the amount to satisfy the judgement. What happens to the excess amount realized from the sale? Does it go to the HOA?

Basically, the HOA will "buy" the house for the debt price at auction. Superior lien holders will then foreclose on the HOA because it's accelerating its claims. The HOA will then either refinance the mortgage or let the mortgage company have the property and begin paying HOA dues.

If a private bidder wishes to over bid at auction, they still will need to pay of the liens not extinguished by the HOA foreclosure.
JohnC46 (South Carolina)
Posts: 14,265
Posted:
Overall I believe a foreclosure is very, very risky proposition for an association to implement. It all depends on what is owed to whom. I believe those that get to the point that an association can foreclose (lack of dues payments) are probably way behind on all creditors (1st mortgage, 2nd mortgage, third mortgage, real estate taxes, etc.) so much so that the HOA will get squat.

All that said, there is a time and a place for a foreclosure.
KellyM3 (North Carolina)
Posts: 2,239
Posted:
My experience is to expect the bank to quickly foreclose on the HOA and take control. Then, the primary lien is extinguished and the house can sell with a clear title. The problem that HOAs face is that they'll never convert a home into a paying account by not moving on with the collections process. It's a bad situation that's more "blah" than anything.

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