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Prepaid legal for forecloseure?

Started by WendyM5 • 15 replies • 294 views

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WendyM5 (North Carolina)
Posts: 1,522
Posted:
I am recently on the board and the property management team sent me over a legal agreement so the law firm can handle foreclosure of 2 units in our 150 single family home HOA. The prices are listed below. We have 2 homes each owe around $2000-$3500 in past dues. Are dues are only about $200 a year, so I'm guessing most of that amount is late fees and fines, because it woudl take 10-15 years otherwise to rack up that much money.

both have liens already which are good for 3 years in NC.

Is there any less expensive way to foreclose? $1200 might be wasted money. Any companiees that have some sort of deal where we dont' pay fees and they collect from the bank when the home is foreclosed? I'm pretty new to this so go easy on me.

FORECLOSURES UNDER POWER OF SALE
Stage Completed Incremental Fee
Stage 1-- Open file, courthouse research,............ $400.00
prepare and file Claim of Lien and send demand letter.
Stage 2A – Draft and send pre-foreclosure letter .......$75.00
and updated account statement.
Stage 2 – Schedule hearing; prepare, file and.......... $325.00
serve foreclosure proceeding notices.
Stage 3–Prepare for and conduct foreclosure hearing. ...$250.00
Stage 4–Conduct foreclosure sale....................... $150.00
TOTAL...................................................$1200
vis ta vie
TimB4 (Tennessee)
Posts: 21,059
Posted:
As you know, there are specific procedures that must be followed to foreclose. Any missed step can cause the foreclosure to fail and have to start over.

In my Association, legal fees are added back into what is owed. Therefore, check your docs, you might be able to recoup some of the initial outlay.

It's also possible that once the owners know you are serious about collecting, they may pony up.

My suggestion (and you may have already done this):

Talk to the members and offer to waive some late charges if they bring their account current by mm/dd/yyyy explaining that if this offer is refused or, accepted and not complied with, no late charges will be waived and legal proceedings will begin.

In this market, I suspect it will be easy to sell a foreclosed home.

Keep in mind, you might not get everything back. However, you should be able to stop the bleeding and, hopefully, the new owners will pay assessments on time.
MichaelT21 (Arkansas)
Posts: 462
Posted:
Foreclosure is expensive, however, as Tim said, it's added to the homeowner account. In the 3 years I have been on the Board, every homeowner has paid all legal fees for every foreclosure proceeding initiated since I joined the Board.

The prices generally seem to be about similar as what our attorneys charge.
CathyA3 (Ohio)
Posts: 6,299
Posted:
You mentioned fines, so I'm going to assume that your state allows foreclosures based on fines. Some states do not, or they limit HOA's ability to impose fines, so make sure you're on solid legal ground before proceeding.

You may have done this already, but since you mentioned collecting from the bank...

It's not unusual for an association to get nothing out of a foreclosure if the owner has a mortgage and your state laws make the bank the priority lien. Before we foreclosed we had to be satisfied that we could get enough from the foreclosure auction to pay off the outstanding loan, and we set the minimum bid for that amount.

Tim is correct: you need to dot your i's and cross your t's to make sure that everything is done by the book. Some judges believe that HOAs are nasty bullies who mistreat homeowners, and they will look for any reason to rule in favor of homeowners. And many boards are careless about following procedures. An HOA is most likely to be successful if the homeowner has stopped paying altogether, has ignored payment plans or other options that the HOA has offered to help get them back on track, and in general has not communicated at all. In contrast, if a homeowner has paid occasionally, a judge may well view that as a good faith attempt to pay what they owe (and deadbeats know this and use this particular dodge to avoid foreclosure).

Our association attorney handled collections and foreclosures for us.

Also FYI: CNBC reports that home prices fell for the first time in 3 years last month – and it was the biggest decline since 2011 I've also heard concerns about homeowners being underwater again (homes worth less than what they owe on the mortgage), which happened a lot during the Great Recession. So another reason to tread carefully.
MelissaP1 (Alabama)
Posts: 13,836
Posted:
That's not bad at all. Plus the money is part of what gets reimbursed. That is usually part of the bid opener. Just like filing a lien you get the filing money back as part of the lien.

Fines should not be part of the foreclosures. Most states it also includes liens too unless do see fancy book keeping strategy.

I have done a foreclosure before. That looks about right. Will take about a year to finally wrap up. There is a right of redemption in some states up to a year.
Former HOA President
JohnC46 (South Carolina)
Posts: 14,265
Posted:
Wendy

That is cheap. I have been quoted $2K to $3K.
SheliaH (Indiana)
Posts: 6,964
Posted:
I like Tim's suggestions, but as a former treasurer for my HOA, I can tell you that foreclosures are NEVER cheap, which is why they should only be done as a last resort. Even then, it's not necessarily about collecting money, because most of the time, the HOA will be left holding the bag - the primary goal is usually to get the people out so the house can be sold to people who will pay.

In foreclosures, the mortgage company always gets dibs on the selling price of the home and if there's anything left, the HOA might get it (usually, they won't because there's nothing left). Hopefully, you're among the first to have filed a lien, otherwise entities ahead of you get a crack of whatever's left. Then, there's a chance there are tax liens against the property, which trump everything, including the mortgage company.

Before you take the foreclosure route, you need to start with taking a good look at what's happened up to this point? Do you know if these people are on a payment plan? If so, have they held their end of the bargain? If not, why not? Have they said why they haven't (or refused to) pay - there may be issues like major medical expenses or job loss have have been a big problem. Those issues may give you some insight on how to approach this - and if everything else has been tried, then you can consider the pros and cons of foreclosure.

Eventually, you may need to put together a formal board policy on foreclosures - you don't say how often they've occurred in your community, but that's where you can start to identify trends and see what works and what doesn't. While you're at it, take a look at your collection policy - that might need some tightening so people don't stretch out non-payment of assessments for years and years.
If it is not right do not do it; if it is not true do not say it. Marcus Aurelius
LoriM15 (Florida)
Posts: 1,009
Posted:
You should check you state laws before you get discouraged about foreclosing, In Florida, the lien date is actually the date the governing documents were recorded so the HOA lien is almost always superior to any mortgage. In other words, the HOA gets their money first.

However, it can be a long process. Because of legislation that came out of the last housing downturn (2007-2008) it's hard to foreclose on a mortgage. The homeowner can delay the process over and over.

I don't think the prices you got for foreclosure were out of line. Those will get added to the amount the homeowner owes and paid out of proceeds of the foreclosure.

I would never consider starting that process without an attorney that you can trust. It's not a do it yourself project.
DouglasK1 (Florida)
Posts: 2,046
Posted:
I never had to deal with a foreclosure, but as I recall, in Florida HOA debt is not wiped out by the foreclosure, the new owners still owe the money. From what I have read on other threads, most states are not like that. The association may or may not get back past dues and legal fees, but as Tim mentioned, it stops the bleeding.
Escaped former treasurer and director of a self managed association.
WendyM5 (North Carolina)
Posts: 1,522
Posted:
Having two home owners not pay $200/each per year which is 1.3% of our annual budget is not causing the HOA very much bleeding. However the legal fees that have built up to several thousands of dollars is more concerning. It's almost as if once lawyers get involved the HOA has to follow through till the end so it can re-coop the bigger legal fees. I wish there was a way to knock into homeowners heads that paying dues is not optional.

Any tips to get this message across to new home owners so that we don't get involved in this legal mess in the future? I think they would pay if they knew that the final bill would be 10x more. Maybe they think it's just gonna ding their credit instead of loosing thier home?

vis ta vie
AugustinD
Posts: 1,027
Posted:
Quote:
Posted By WendyM5 on 09/11/2022 5:53 AM
Any tips to get this message across to new home owners so that we don't get involved in this legal mess in the future? I think they would pay if they knew that the final bill would be 10x more. Maybe they think it's just gonna ding their credit instead of loosing thier home?
In my experience foreclosing on the owner who owes the most, and announcing at board meetings that the HOA has, on behalf of the HOA and all owners, taken substantive legal steps, including foreclosure, to collect past due steps, can quickly deter others thinking about not paying and incentivize those who currently owe.

I agree with those above who said that the charge for foreclosure given in the first post here sounds like a bargain. To me, it's also a sign of experience with foreclosures on the part of the law firm.
MelissaP1 (Alabama)
Posts: 13,836
Posted:
We have a policy in place. 6 months we filed a lien. 1 year we CONSIDERED foreclosure. Foreclosures are a "STOP THE BLEEDING" process. It costs money to make money they say. It's a necessary "evil" to pay out the money to recoup it. It's part of the process. Plus it is the starting point of the opening bid owed the HOA to whomever buys the property.

Don't plan on getting the money back. That ship has sailed. What you have to look at is that you got rid of a non-payer for the option of getting a person who does pay in. Which will take some time for legal reasons.

In Florida it is one of the only states I know of that a buyer can pay the previous owner's debt to the HOA. This is pretty much uncommon in most states. The situation is rare. Florida also is one state that the renter can pay the amount owed to prevent their eviction. This is also not common. Renters do NOT pay HOA fees nor have HOA voting powers. So it puts it out of the "norm" for that type of sistuaion for a renter to step it up when the owner doesn't.

You can always keep a lien on the property until they sell. It will have to be paid back upon sell of property. However, once your tired of the years this takes, foreclosure is the next step one takes.

Our HOA we had someone that owed $2500 dollars. Considering dues was $50 a month with $20 late fees that was a good amount. The owner had a 2nd mortgage which they were having their "rent to own" tenant pay. (Unbeknownst to them). We foreclosed. The owner tried to make their tenant pay. That is when they found out about the situation and moved out. They ended up suing the owner for over $10K and won. I had to testify in court over that one. In the end, we got our $2500 back for the expense of foreclosing. A year or so later the house was bought by someone at a tax foreclosure. It was repaired and had new paying owners in it.
Former HOA President
SheliaH (Indiana)
Posts: 6,964
Posted:
Unfortunately there will always be people who think rules and the legal obligation to pay their fair share of assessments is optional, so get used to it. It doesn't seem like you have a huge problem with delinquent owners, but what you can and should do is give homeowners a copy of the collection policy.

That should contain language that says homeowners are responsible for reimbursing the association for all legal expenses and collection costs generated in pursuing the debt. You could include an example of how quickly these expenses can add up- sometimes seeing the costs in black and white will motivate people to deal with this the right way instead of not paying and thinking it'll all go away.

Remind people that when assessments aren't paid in full and on time, that forces those who do to indirectly subsidize the deadbeats, which is unfair and can ultimately hurt the association's ability to pay its bill, which hurts everyone in the long run.
If it is not right do not do it; if it is not true do not say it. Marcus Aurelius
MichaelT21 (Arkansas)
Posts: 462
Posted:
Quote:
Posted By MelissaP1 on 09/11/2022 9:00 AM
We have a policy in place. 6 months we filed a lien. 1 year we CONSIDERED foreclosure. Foreclosures are a "STOP THE BLEEDING" process. It costs money to make money they say. It's a necessary "evil" to pay out the money to recoup it. It's part of the process. Plus it is the starting point of the opening bid owed the HOA to whomever buys the property.

Don't plan on getting the money back. That ship has sailed. What you have to look at is that you got rid of a non-payer for the option of getting a person who does pay in. Which will take some time for legal reasons.

In Florida it is one of the only states I know of that a buyer can pay the previous owner's debt to the HOA. This is pretty much uncommon in most states. The situation is rare. Florida also is one state that the renter can pay the amount owed to prevent their eviction. This is also not common. Renters do NOT pay HOA fees nor have HOA voting powers. So it puts it out of the "norm" for that type of sistuaion for a renter to step it up when the owner doesn't.

You can always keep a lien on the property until they sell. It will have to be paid back upon sell of property. However, once your tired of the years this takes, foreclosure is the next step one takes.

Our HOA we had someone that owed $2500 dollars. Considering dues was $50 a month with $20 late fees that was a good amount. The owner had a 2nd mortgage which they were having their "rent to own" tenant pay. (Unbeknownst to them). We foreclosed. The owner tried to make their tenant pay. That is when they found out about the situation and moved out. They ended up suing the owner for over $10K and won. I had to testify in court over that one. In the end, we got our $2500 back for the expense of foreclosing. A year or so later the house was bought by someone at a tax foreclosure. It was repaired and had new paying owners in it.

My experiences are very different than Melissa's.

I joined the Board 3 years ago and, at my urging, we started offering payment plans and filing foreclosure lawsuits against delinquent homeowners. We have "gotten firm" with about 5 - 7 homeowners in the past three years. Every time we have recovered 100% percent of dues. In many cases, we recovered 100% of dues togther with 100% of late fees and 100% of interest. Other times we had to waive late fees / interest to get the homeowner to pay.

It helps that we are in a strong housing market where homes are worth more today than when the homes were purchased. If homeowners were underwater, I would say it would be unlikely that we would get money back.
MelissaP1 (Alabama)
Posts: 13,836
Posted:
FYI - Lawsuits for paying back money owed in a HOA should not be done in general. It has no "teeth" as a Lien or Foreclosure has. A lawsuit just gets you a "judgement". A judgement that one can sell their house and walk away from. Plus it does not accummulate like a Lien or Foreclosure does over time. It is the amount at time the lawsuit is filed. Plus you must refile to collect after 7 years. Who is going to remember to do that? A HOA has no right to one's social security number. Which makes it harder (not impossible) to collect on money owed. Without Social security # some options are not avaialable as readily to use. (Wage garnishment as an example).

We also had a program set up to avoid liens. Which we would wave late fees and interest owed if they would pay up. These are "punitive" charges anyways so not 100% collectable as they can fall under "Fine" terriotory. They still had to pay the legal fees for filing as that is part of the lien. Also if it's a situation where you can afford to pay half the dues, we would let you catch up in that 6 months as long as you atleast made an attempt to pay. If you did not then expect the book heading your direction.

Overall need to set up a policy in place that people understand and know. 6 months behind lien/1year behind foreclose was pretty simple for us if you paid monthly. It may be differently for those who pay yearly.
Former HOA President
LetA (Nevada)
Posts: 2,679
Posted:
Here in Nevada we are stuck behind the 8 ball. A few years ago the State legislature amended the foreclosure law to allow deadbeats to stay in the home and continue to screw over the HOA.
If someone has a mortgage the HOA needs to file a notice of intent to foreclose with the mortgage lender. The lender is bound by law to cut a check to the HOA for 9 months of assessments.
During the pandemic we were not allowed any collection action on deadbeats. We have one account that is near $3000. Our PM says they see a new game deadbeats play with the banks and HOA.

There has to be a breaking point with the banks, how many times will the bank keep cutting checks for 9 months of assessments even if the owner is current on their mortgage, someone has to lay
the hammer down.

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