Any Takers?
Got this question in an email today. I’m not sure of the answer, so I thought I’d throw it open to any FOREM readers doing a little weekend reading.
Dear Joel:
I know you’ll be able to help me. I live in a PUD called villas…much like a condo complex except we go by the state of Florida statutes & constitutions of the home owners associations. Of the 88 homeowners 6 are being foreclosed, therefore not paying any more association fees. Is it legal for the assoc. board to demand that the remaining 82 homeowners pay the past due and ongoing unpaid dues of the foreclosed properties? What is stopping someone selling their home to put a sign out front, move out and expect the other homeowners to pick up their association dues? This is not addressed in our by laws.
Throw your answers in the comment section.
If you enjoyed this post, make sure you subscribe to my RSS feed!
Todd Carpenter | Mar 8, 2008 | Reply
I’m not going to give a legal opinion, but it happens all the time. It will likely get even more common this summer. I always wondered why HOA’s never try to sue the lenders who have foreclosed.
Anyway, it sucks, but those fees serve a purpose, and have to be paid. Where else is the money going to come from?
Ann Cummings | Mar 9, 2008 | Reply
It does stink to be stuck with those fees, but they need to be paid by someone or else the association will end up with a shortfall, and then what happens? You either end up increasing those fees or you end up not being able to do the maintenance and other things those fees are budgeted for.
This is an interesting question, and I’m not sure I’ve seen that kind of situation addressed in any condo docs that I’ve read. I sell a number of condos in my area, and I think I’ll check some of those docs to see if/how that’s addressed.
Patricia J | Mar 9, 2008 | Reply
I don’t know if this will help. I am from England. We call foreclosures repossessions. When a property is repossessed by the bank it is the law here that the bank has to pay any maintenance fees which are outstanding & continue to pay those fees until the property is sold. Also, an association (maintenance company) can obtain a legal lien on the property so that any fees due will be paid out of the proceeds of the sale, whoever buys the property even if this is the lender. I am surprised that this is not the case in Florida
Missy Caulk | Mar 9, 2008 | Reply
Being in MI, one of the highest states for foreclosures here is how it would be handled.
The association dues become a lein on the property and is on the title. Before the new buyer can close they must be given clear title, with no leins. So they are paid at closing by either the bank or the deliquent seller. The title companies make sure this is done as they are insuring there is not leins.
However the association must RECORD the lein so that it will show up.If the association just lets it sit on their books and not record it, the debt will not get paid;therefore leaving a deficit on the association books.
Most associations are not running at a negative balance and would have a reserve fund. But it is best to record the lein and have it paid out of the closing.
Rob Aubrey | Mar 9, 2008 | Reply
Not Legal Opinion (disclosure)
As much as it sucks to have to pay someone else’s weight. If their fees are not collected then “everyone” could have interruption of services. If there is not enough to pay the water bill or whatever is covered by the fees it could have a worse situation.
To answer #3
They would be obligated during the bank’s ownership. Because of the high cost of owning a non-performing asset, banks are keeping the title in the debtor’s hands longer (can’t blame them for that).
It will be a lien, the problem is the bank loan is recorded in first position and therefore when foreclosed the bank loan is the first paid and there probably aren’t enough proceeds to pay the bank let alone any other liens.
Then the association would have to foreclose if it is economically feasible, this would get the title in the banks hands.
I think the trick would be to have the association documents re-written to where the association is in an automatic first lien position, so when someone buys it the loan is behind it.
Thanks for the puzzle Joel, more fun the Times.
Jason | Mar 9, 2008 | Reply
Consider for a moment… the condo owner, by pursuing a short sale, is actually doing the rest of the condo owners a favor.
whether it is a short sale or the bank forecloses, the HOA may take measures to recover the losses from the owner who suffered the foreclosure or sold the home short; A HOA has the right to seek unpaid assessments and all of the reasonable costs that accrue with regard to the collection matter from the individuals who owned the property during the period of unpaid assessments. In fact, an HOA is entitled to pursue any number of recover methods until the debt is paid.
If John Whomever Smith cant pay their mortgage then they probably dont have the money to continue paying their assesments, which of course usually means the money is collected from the other residents. The truth is that there is no one else to get the money from and if they allow the home to be foreclosed on, then you, the responsible home owner, are screwed. You now have a foreclosure sale on the books! Oh, did I mention the lender has no obligation to maintain the property it takes back in foreclosure?
Despite the initial increase in monthly dues, I think in the long run it would be better to keep the property occupied during a short sale (going after the unpaid dues at a later time) then to allow (or even encourage) it to go vacant, show up as a foreclosure and go unmaintained (at which time you could pursue unpaid dues).
Brecht | Mar 9, 2008 | Reply
Foreclosure and condo laws are state specific. In Massachusetts the association can make “special assessments” and can require additional monies. It can also foreclose on a party not paying dues. Under MGL Chapter 183 A 6 months of fees are superior to the first mortgage and I believe even municipal liens. What you really need is a Florida real estate attorney.
Andew | Mar 9, 2008 | Reply
First off, this person HOA is definately messed up. This is very odd. Before anyone can sell/close on a home they need a letter from the association (we call this a 6D certificate in MA) that states the seller’s dues are up-to-date or they can’t sell/close. This goes for any type of sale, including bank sales.
Vicki Lloyd | Mar 9, 2008 | Reply
In California, when a home is foreclosed, all liens that are behind the foreclosing lender are wiped out, except for IRS & state taxes. If an HOA has gets a judgement recorded prior to the foreclosure, there is a chance that the previous owner will eventually have to pay that back. (When they attempt to get new credit it may be required before funding!)
While HOAs have the right to foreclose, it rarely makes any sense because they would have to either pay off or service any underlying liens & mortgages.
Once a lender owns the property, they are responsible to pay the HOA dues, although many times they will wait until the property has been re-sold before paying.
All other owners in the HOA will bear the burden of the lost dues when the next year’s budget is prepared. The shortfall will likely be made up for in a dues increase!
Patrick Galesloot | Mar 9, 2008 | Reply
That’s surprising that the association has no protection written in the bylaws. You’d think that any association would have written policy regardless of local legislation to protect the other home owners from default or actions against one individual. Wonder how many associations will be reviewing their documents to ensure that a lien is placed, and that the other home owners are not left with the tab.
Would be a nice follow up to see how this and others have been dealt with.
Patrick
Rebecca Levinson | Mar 9, 2008 | Reply
The association can protect their interest by filing a lien against the homeowner’s property and having it recorded. This will show up on the title report. The seller will need to pay the lien, usually out of the proceeds at closing, in order to close on their house.
Mike Hale | Mar 9, 2008 | Reply
The HOA can place a lien on the property, but if the house is sold at auction, there likely won’t be enough to cover the HOA lien, and it will be extinguished.
The HOA has their budget, and any shortfall would have tobe covered by the remaining homeowners. Now, they *should* cut out all non-essential services before that, but if peopel are unable topay their dues they’ll only end up raising the fees anyway.
Unless the bylaws specifically caps fee raises, or specify how shortfalls are covered, I think the HOA is within their rights to assess the shortfall to everyone else.
(Of course all this may vary by state/municipal law)
UtahLuxury.com | Mar 10, 2008 | Reply
I will add my two cents as well.
An HOA is there to provide a service to a community. The fees associated with the HOA are to provide those services. If the services are rendered but the payments are not the HOA will find a way to re-coupe its money.
Now this is not a legal source that I just offered rather just an example of why you have an HOA. Suffice to say I live in a place where the HOA is run by a master HOA and they have some of the harshest rules I have ever seen and I believe a lot of the money is for gain and not for the community.
In my case and opinion, should there be a large number of defaults, I believe that the HOA would have to eat their losses because they use the HOA for gain on top of their services.
Cyndee Haydon | Mar 12, 2008 | Reply
Let me share with you what we are seeing in Clearwater Florida right now.
A large luxury condo community where people paid $500,000 for units 2 years ago those same units are now selling in the short sale/ REO process for $200,000-$250,000. Many were bought by investors and now at least 1/3 of units in foreclosure.
They just assessed all the owners $7000 - ouch (because of the same scenario described above)
Now here’s where all the buyers wanting bargains need to read the fine print…
The banks who now own the properties have written their own contract that says they will not be responsible for any pending fees and assessments.
In addition our buyers are finding that the Pinellas Property Appraiser still have properties valued at $498,000 even through NO comps last year would have supported them keeping that taxable value when they did it in November so again - the new buyer will pay an extra $6000 in taxes on value that doesn’t exist.
Ironically - all of this is making these condos worth less and harder to sell - creating a downward spiral effect.
We’ve told our buyers to get legal advice from a lawyer before signing bank papers and signing off on condo document since few are prepared to shell out big bucks at $5000, $10000 or more. Because as the writer says - once you buy in it’s kind of like marriage - for better or worse, richer or poorer. Few really consider the downside of Association assessments when things don’t go well.
I read a good article on the Real Estate Sizzle this week about getting Loss Assessment Coverage as part of your insurance coverage that every condo buyers should read:
http://realestatesizzle.com/2008/03/09/special-insurance-coverage-for-condominium-owners/