1 in 3 homeowners will owe more on their homes than they are worth

Sobering, and something that needs to be considered by associations. From the Chicago Tribune:

1 in 3 homeowners will owe more on their homes than they are worth

http://www.chicagotribune.com/business/chi-upside-down-mortgage-monoct13,0,2329863.story

Within a year, Moody's Analytics predicts, a whopping 30 percent of all U.S. mortgage holders will owe more on their homes than they are worth. In some California communities, according to real estate service firm Zillow.com, negative equity already is the norm.>/ul>

i was always under the impression that pretty much everyone with a mortgage owed more for their home than it was worth, unless they had a big down payment or got a sweetheart on the price.

Between financing the closing costs, title fees, messenger costs, recording fees, points, etc., plus the automatic interest added at the origination of the loan, loan fees, origination fees, and all the paperwork fees, aren't you automatically upside down? Once you sign on the dotted line, you immediately owe something in interest, right? that makes you owe more than it's worth, unless you got a bargain on the price.

Brian,

I don't think many people pay much attention to the amortization schedule. If they did, they surely would strive to pay that mortgage off as soon as possible. During the first 10 yrs or so I believe approx. 90% of the payment goes to interest!

Brian,

No problem. Bottom line: we're not a very attentive lot to our obligations; but sure DO pay attention to all the handouts!

I can give you one reason to "consider" this - foreclosures. We've already had several in our community because people refinanced when the value of their home was artificially inflated, and now they can't sell the place for what they owe. At least two have decided to just "let the bank take it back." So you end up with unpaid dues, legal fees, property that isn't maintained, sheriff's sales, etc.

I'd say that's worth considering.

Brian,

You missed my point. I made no mention WHATSOEVER about allowing new owners to not pay dues. My post referred to owners who have gotten themselves in a bind by REFINANCING and ending up unable to sell the home for what they owe. So they opt for foreclosure. If a homeowner is in foreclosure do you really think that paying their HOA dues are a priority? I can send them all the late notices in the world and I'm not going to get a response. In at least one case the owners just left - we had no contact information. So I got the HOA attorney involved, and that meant legal fees. Luckily we were able to recoup the delinquency when the home went up for sheriff's sale by listing the over due amount on the resale certificate.

If the house is vacant during the period between the owners running off and the bank actually reclaiming the property grass won't get cut, etc.

I don't think my post was that difficult to understand.

Earth to Brian, earth to Brian . . .

A foreclosure does, indeed extinguish a lien. That is what foreclosures are all about. The lien holder takes adverse possession in exchange for the lien.

Also, many covenants and maybe even some laws have language that exempt banks from paying assessments with foreclosed properties.

And, many if not most, covenants as well as law make assessments a personal obligation, so that other remedies may be pursued.

My knowledge of real estate law is woefully inadequate to provide a definitive response, so be wary. With that said, let me expound further

With some exceptions for taxes and first mortgages, liens are paid off in the order they are recorded. Thus, a first mortgage has a higher priority than a second mortgage. If a house with no owner's equity and a $100,000 first mortgage is sold in foreclosure for $90,000 then any lien holders (second mortgage, homeowners association, contractors, etc.) receive nothing.

Because property taxes have a priority lien, most mortgage companies require escrow accounts so that they can assure that taxes are paid.

My understanding is that prior to a "sheriff's sale on the steps of the courthouse" a property in foreclosure is not technically "owned" by the lien holder. The property is in "receivership" by the court. Thus, the bank is not responsible for any utilities or homeowners association fees, etc.

Sometimes, a second mortgage holder will foreclose on a property. In such cases, a first mortgage holder will purchase the property at a lien sale in order to protect its investment. (However, even if the second mortgage holder forecloses, the first mortgage holder is paid off first to the extend funds are received.)

For the reasons above, this is why lawyers push homeowners associations to foreclose on unpaid assessments as soon as possible, before the first mortgage is in default. Otherwise, the association may not receive anything for back assessment in a foreclosure sale.

Most covenants have "provisions for the protection of first mortgage holders" included as boilerplate--and required by banks. Here is one I found quickly this morning:

Section 4. Liability for Unpaid Assessments. Any First Mortgagee who obtains title to or comes into possession of a Lot pursuant to the remedies provided in its First Mortgage or by foreclosure of the First Mortgage or by deed or assignment in lieu of foreclosure, and any purchaser at a foreclosure sale in connection with any such First Mortgage shall not be liable for the unpaid assessments of the Lot which were payable prior to the acquisition of title to or possession of such Lot by the First Mortgagee.

If banks come into possession due to foreclosure there are some state laws that exclude them from having to pay association fees. This is not true in all states. However, I do believe this is one of the huge problems right now in Florida.

I wish I was more informed about this, but my expertise is not in real estate law.

As an aside, I am going to propose next month that the legislature in Hoosierland consider changing the law to require banks and other holders of foreclosed homes to pay assessments from the time of possession. This may be a challenge, since it could galvanize the banks to oppose the entire bill.

thanks George! Your info is helpful, it tracks a lot with what i heard before too, except the possible states laws that forgive banks HOA dues accrued under their ownership. That one i have luckily never run across.

Thank You, George! I guess I was naive to think that this was common knowledge. Your input was greatly appreciated.

Peny

We've filed liens against a bank-owned home.

The initial liens against the previous owner was erased in the foreclosure.

But then the banks failed to pay the dues current from their take-over of the titles.

We filed a lien.

Actually this happened a couple of times over a several-year spread (on different homes with different banks).

In each case the closing attorney simply called for the payoff amount at closing when the home ultimately sold and we got our money (from the point of the bank take-over).

But keep in mind that our annual dues are $150. With late fees and penalties, the payoff amounts were all less than $900. They ranged from roughly $300 to $875.

In 10 years time, that was probably about 3 or 4 times that happened.

One time we didn't even realize the bank had taken over so we didn't release the lien at foreclosure -- for whatever reason, we were not noticed or served re: the foreclosure. So when the closing attorney called for the payoff amount, we quoted them the original lien payoff. They never questioned it, cut us a check and we didn't notice it until the lien was released.

We contacted them back to see if they wanted to be reimbursed and were told not to worry about it. I guess the paperwork to "clean it up" would have been too much of a hassle?? Who knows. We were not going to ask twice!!

My neighborhood has been severly hit by the subprime mess. Right now we have about 19% of homes not currently paying assessments. However, we have employed a law firm that does collections at no cost to the association, and they have paid us somewhere around $110,000 just this year in late assessments, fines, fees, etc., which is a good chunk of our Assessment A/R. So far, they have never asked us to foreclose on a home; instead, they have been pressuring the senior lienholder to foreclose so that we don't get stuck with the house. Most of the banks then pay the assessment after they foreclose, because if they don't our lawyers threaten to foreclose on the bank (and then the bank will lose all their equity in the home). Been a very good deal for us so far.

I don't know if it's true in any other state, but in Nevada, the association is entitled to 6 months' worth of back assessments (the lawyers call it a superpriority). I believe this even applies to bankruptcies. But I am ignorant about how this applies to other states.