REOs and HOAs

[no_such_reality]

I was pondering the downtown condo market this morning. The foreclosures are piling up, the prices moving down, rapidly in some cases.

A thought crossed my mind. Part of what is slowing down the REO market is the staffing issues in the REO offices.

When the bank forecloses, they wipe out subordinate liens. My question, how does the work with the HOA? Technically, the past due HOA fees aren’t a lien correct? Does the past due balance get eliminated? Even if it does, many of the downtown condos have HOAs are $400, $500, $600 or more each month.

Once the bank takes possession, they are now responsible for the HOA dues correct? Are they paying them? If not, under California HOA laws, can the HOA non-judiciously foreclose on the bank after a year for past due HOA fees exceeding $1800 and more than one year in age?

[Arty]

Technically, the past due HOA fees aren’t a lien correct? Does the past due balance get eliminated? Even if it does, many of the downtown condos have HOAs are $400, $500, $600 or more each month.

Wow, any lawyer here. As far as I know, the HOA can apply the lien anytime as long as is on its book. So I think most HOA will wait until someone brought it or apply the lien after foreclosure. I don’t know about California law, however, the HOA has to supply a copy of resale agreement outlining if there is any problems with the unit (i.e. over due HOA fee) in Washington state. This is not a legal advice!

[Ex-SD]

I am NOT an attorney. Just my opinion.

I think that the unpaid HOA fees will continue to accrue for each month that they have not been paid until the unit is sold. At closing, the outstanding HOA fees must be paid from the proceeds of the sale or escrow cannot close.

[davelj]

Ex-SD has it right. The unpaid HOA fees accrue until the unit is sold. Once the unit is sold, the unpaid HOA fees are paid to the HOA. The lender keeps the rest (assuming there’s no equity left). The problem for HOAs, though, is that this is a long process. In addition, the HOA’s management company is going to charge additional fees to keep track of this stuff.

[DaCounselor]

Interesting niche issue, nsr.

If the HOA has filed a lien for unpaid dues (in excess of $1800 as you point out) it would indeed be cleared out by a superior lienholder (1st or 2nd mtg, for instance) foreclosing. The HOA could keep those in a superior position current and foreclose itself, but in today’s environment that probably wouldn’t make sense as I suppose most of the properties at issue may be under water.

If the HOA lien is wiped out, the HOA can still pursue payment from the former homeowner via legal action. Just because the HOA lien is wiped out doesn’t mean the obligation goes away.

Once the lender becomes the owner, they are obligated to pay HOA dues. If they do not, they property would once again be subject to an HOA lien ($1800 plus), HOA foreclosure and/or legal action against the lender for payment of dues.

[Mr_Brightside]

A friend of mine is a recently elected HOA president, this topic came up over drinks one night. He thought that they get their money while I didn’t think that was the case. My view was the HOA fee is more like a cable bill and is the problem of the underwater owner not the bank that holds the first mortgage.

I’m still not completely convinced myself although DaCounselor seems to know what he’s talking about.

Are there any more references to actual case or anything specific?

I think this is an important issue in our current market.

[davelj]

Brightside, DaCounselor, et al…

I spoke with the head of my building’s HOA about this (he was also the building’s developer) and he said (I’m paraphrasing):

“In all but the most unusual cases – that is, situations where there might be an issue with the CC&Rs or the property’s title insurance – the institution that forecloses on the property must pay the accrued unpaid HOA dues or else they will not be able to legally transfer the title of the property to a new owner.”

A friend of mine who’s the CEO of a local bank said the same thing in so many words.

Now, they may be wrong; laws may have changed; or whatever else, but the impression I get – and there’s a certain logic to it – is that the owner of the property (whether it’s the original owner or a financial institution) must cure any issues with unpaid HOA dues before legal title will transfer to a new owner. Having said that, maybe the law varies to some degree depending on the circumstances. I’m just reporting what I’ve been told by people who should know about such things.

[davelj]

Brightside, DaCounselor, et al…

I spoke with the head of my building’s HOA about this (he was also the building’s developer) and he said (I’m paraphrasing):

“In all but the most unusual cases – that is, situations where there might be an issue with the CC&Rs or the property’s title insurance – the institution that forecloses on the property must pay the accrued unpaid HOA dues or else they will not be able to legally transfer the title of the property to a new owner.”

A friend of mine who’s the CEO of a local bank said the same thing in so many words.

Now, they may be wrong; laws may have changed; or whatever else, but the impression I get – and there’s a certain logic to it – is that the owner of the property (whether it’s the original owner or a financial institution) must cure any issues with unpaid HOA dues before legal title will transfer to a new owner. Having said that, maybe the law varies to some degree depending on the circumstances. I’m just reporting what I’ve been told by people who should know about such things.

[DaCounselor]

sounds right, davelj. the bottom line is that the HOA is going to get paid. they certainly can chase the foreclosed homeowner for pre-foreclosure dues, but it sounds like the HOA more typically sits back and waits to ultimately get paid by the lender.

[DaCounselor]

sounds right, davelj. the bottom line is that the HOA is going to get paid. they certainly can chase the foreclosed homeowner for pre-foreclosure dues, but it sounds like the HOA more typically sits back and waits to ultimately get paid by the lender.

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