Can the Association foreclose?
I came across an interesting situation the other day. For the second time in the last five years, I was told that if we cannot get the short sale approved lickety-split, the Homeowner’s Association (HOA) will be foreclosing on the property.
In this particular situation, the first lien holder had not even begun foreclosure proceedings. And, since the seller owes a significant amount of money to the HOA, the HOA began foreclosure proceedings and is now planning to foreclose in a week or so.
While it does not matter that the HOA’s logic may have some inherent flaws, they do have the right to foreclose if they are not paid the balance owed (or some settlement amount) prior to the date of the foreclosure.
How can short sale woes like this be avoided?
- Discuss the HOA dues with the seller when taking the short sale listing. Because HOAs are getting the shaft in this turbulent real estate market, they are more aggressive than ever. Assure that the HOA is getting its monthly moola so that you do not find yourself in a sticky situation later on.
- Verify the HOA balance. Obtain a copy of an HOA statement or contact the HOA to find out whether or not the homeowner is current on the dues.
- Learn about transfer fees, document fees, and any other association fees connected to the sale. Many times the short sale lender will not approve any of the proceeds to be paid for anything associated with the HOA, or they may only approve a small portion or the total amount. Be prepared to deal with this by knowing the numbers up front. So, when and if the lender cuts fees, you will know the challenges that may lie ahead.
In this case of the HOA foreclosure, the HOA has agreed to receive $2500 in lieu of the $18,000 actually owed, and that’s a pretty good deal for the short sale seller. The thing is that if you do not want to see your deal almost die like this one, it is a good idea to follow the steps above. You never know who is going to auction of the property on the courthouse steps!
Greg Cook
February 14, 2012 at 9:48 am
Melissa, I've heard it said on a number of occasions that the buyer pick up delinquent HOA fees. After all the properties are such a deal, they should chip in.
Great in theory, BUT if the buyer does pay any of these fees they have to be disclosed on the HUD, the amount considered in their cash to close AND it will count against Section 32 and FNMA high cost limits.
Don't negotiate your clients out of their new home.
Eric Johnson
February 21, 2012 at 9:15 am
Sellers need to understand that HOAs are using personal liens more often vs foreclosure so it's in their best interests to keep the HOA current.