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Diane Wheatley’s Blog

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By Diane Wheatley, Broker | Broker in Rancho Cucamonga, CA

What if the HOA forecloses when the 1st is current?


Question:  What happens in the following foreclosure example concerning past due HOA dues:

* Condo owner has a 1st mortgage of $350,000 and is current on their payments.
* Homeowner is behind in their HOA dues and refuses to pay claiming they do not have the money.
* Amount has been overdue for 24 months and the amount is $12,000
* HOA has filed a lien and done all of the paperwork to foreclose.
* HOA executes a non-judicial foreclosure for the $12,000 unpaid debt.
* The HOA takes title to the property.
* Time has expired for the Condo owner to re-claim their property from foreclosure by the HOA. The Condo owner has moved out of the property.
What happens to the 1st mortgage holder?
How do they get their money which was secured by the 1st mortgage?
Can the HOA sell the property for any price?
Who has a claim on the proceeds which exceed the $12,000 debt?

Answer:  Based on what you have stated the HOA now owns the property.  Provided this was a typical HOA, the Deed of Trust is still attached to the property.  If the HOA wanted to sell the property the loans would need to be paid off.  If they do not make arrangements with the lender for payment or payoff,  then the lender can start the foreclosure process.  If the lender forecloses then the HOA would be wiped out.

When a homeowner has not paid their homeowner association dues the HOA could absolutely take ownership of a property through the non-judicial foreclosure process subject to any senior liens recorded against the property.   The HOA would first need to file a lien for the past due assessments and then foreclose on that lien position by filing a Notice of Default and a corresponding Notice of Trustee Sale.  Providing that a 3rd party investor did not purchase the property at trustee sale, the HOA would then own the property.   At that point they could payoff the existing senior loans, rent or sell the property.  If they are not making the mortgage payments then it would be a matter of time before the lender would foreclose and wipe out their ownership interest.  

It would be wise for a HOA to consult with an attorney before proceeding with a foreclosure on a member of their association.  Keep in mind that the HOA could end up like so many owners of investment property where they rent out a property and a Notice of Default is filed and the renter stops paying rent.  The non judicial foreclosure process in CA can take as little as 111 days from the filing of the Notice of Default to the Trustee Sale.

There are many variables involved with any foreclosure action.  Each case is different in its own right.  You are strongly encouraged to seek legal advice from a real estate attorney specializing in foreclosure actions.  The information provided herein has been taken from a reliable source but is not guaranteed.  Please consult with the appropriate professional properly certified to provide accurate and reliable advice prior to making any decisions on your own.

A HOA can foreclose on a property just like a lender. You would get the trustees deed like any other sale and as long as it was recorded within 15 days of the sale it would be effective the date of the trustee sale. The big difference with a foreclosure on a HOA lien is that there is a 90 day Right of Redemption in CA. Although you could give the appropriate notice to the occupant to take possession or start the eviction process most investors would tell you to wait until the 90 days are up before you push the issue. If the property is vacant you would be able to take immediate possession of the property like any other sale. YOu can read more about the CA foreclosure laws by going to http://www.foreclosureradar.com/ca-foreclosure-law

Comments

By Kathy Weber (951) 551-7587,  Sat Mar 5 2011, 20:59
Thanks for the clarification on this HOA issue. The HOA's are becoming more savvy in this market & are really pursuing their losses attached to the properties.
If the property has delinquent HOA's, the majority also have delinquent property taxes. Just another issue in the So Cal market!!
By Mountainlake,  Fri Feb 10 2012, 11:37
This scenario (in the March 5, 2011 posting entitled What if the HOA forecloses when the 1st is current?) covers most of my question. But, What if an HOA forecloses where the 1st is NOT current?

Question: Is an HOA’s lien extinguished after it has completed a foreclosure process and takes title to the property? And, does a third party purchaser at an auction in which a 1st takes the property from the HOA have a right to get the lien removed, even if the HOA refuses to remove it?

…The borrower is BOTH behind on its HOA dues and also, in default on its loan. …The bank files a notice of default.
…The HOA files a lien.
…Before a 21 day notice of Trustee Sale has been filed by the bank, or while the auction date has been postponed, the HOA completes a foreclosure proceeding and takes title to the property.
…The bank then files a 21 day notice and proceeds with an auction.
… A third party buys it at auction. But, the lien is still on the property.
…Assume that all procedures have been followed properly by both the bank and the HOA.
…When the HOA took title to the property on which it had filed the lien (on which its foreclosure proceeding had been based), did the lien automatically get wiped out?
…If so, does the new owner who bought it at auction have a right to either petition a court to get the lien removed, or simply document this and ask the recorder’s office to remove the lien without a court petition?
…What is the source of the law that would be used in Nevada?
By Diane Wheatley, Broker,  Sat Feb 11 2012, 18:25
What statutes govern Nevada foreclosures?
The laws that govern Nevada deed of trust foreclosures are found in Chapter 107, Nevada Revised Statutes. The laws that govern mortgage foreclosures are found in Chapter 106, Nevada Revised Statutes..

http://www.leg.state.nv.us/nrs/NRS-107.html
http://www.leg.state.nv.us/nrs/NRS-106.html

A few states allow HOA liens to be super senior, which means they would not be wiped out and can be "super senior”, like property taxes but I’m not certain about the law governing foreclosure in Nevada relates to your scenario. As I recall it requires the CC&R's which are generally always recorded before (or senior) to any individual home loans, to specifically put future lenders on notice that HOA debts are senior. Problem is that despite the fact that their lien is wiped out through foreclosure by the first, the associations often fight you for payment on the balance of the debt owed. While I think they would ultimately lose, it's sometimes more expedient to pay them off. In any case, you'll need to work it out with your title company or closing attorney.

Remember that just because a junior’s lien may be extinguished through the foreclosure by a senior lien holder it does not necessarily remove the threat that the HOA won’t attempt to pursue repayment through a collection company. Do they have the right to pursue for the payment after foreclosure has wiped them out? I don’t believe there is any merit to that ability but I won’t say that they won’t try.

Good luck.

****DIANE WHEATLEY IS NOT A LICENSED ATTORNEY. THIS EMAIL IS COMPRISED OF HER OPINIONS,
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By Janus,  Tue Apr 24 2012, 17:29
Do you know anything about Maryland regulations for the HOA to take over the title after filing lien on a condominium for seriously delinquent condo fees? Is taking over the title state-specific or is it a common practice with a few minor differences (i.e., time frames, fees, etc.) that differ from state to state?

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