Foreclosure in Seattle>Question Details

Slk, Home Seller in Seattle, WA

bank approved short sale that buyer walked away from because underfunded HOA reserve. Do I have recourse on the HOA since I can't sell?

Asked by Slk, Seattle, WA Thu Apr 5, 2012

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Worth mentioning...in CA as example you might have recourse as the legal standards HOA Board Members must adhere to are more strict. In WA there was no legal obligation to even do a Reserve Study to know whether or not Reserves were sufficient until recently. That recent Law is not nearly as strict as the Laws governing condos in CA.

So yes, you need to speak to an attorney to know if the HOA is adhering to its State Law required duties to answer your question, BUT know that the laws in WA are lax compared to the laws of some other States.

Given people from other States read these Trulia Q & As, it is worth mentioning that there may be different answers depending on which State and that State's Laws regarding minimum required standards for HOA Boards.
0 votes Thank Flag Link Thu Apr 5, 2012
Do you have recourse on an HOA that already does not have enough money?? This is one of the risks that you run into with the affordability and convenience of the Condo. You are not alone...many HOA's are underfunded these days as homeonwers have a harder time paying and keeping up with dues and builders are no longer reachable for some claims. To know for sure I would speak with my attorney Jacob...but other than that......
0 votes Thank Flag Link Thu Apr 5, 2012
You have no recourse as far as I can see. If you want to make sure, go speak with an attorney.
0 votes Thank Flag Link Thu Apr 5, 2012
Ardell wrote: "Funny thing about suing people...sometimes they counter sue as a result and you lose not only your case but the counter suit. If the buyer could not get financing due to the insufficient reserves or some other reason like a pending lawsuit, and that was not disclosed, he might want you to reimburse him for his home inspection, as example."

Good point, but here the potential suit would be against the HOA, not the buyer. As to your point though, I've seen suits against one party turn into large judgments in favor of the other party.

As a general rule, if you end up in court you've already lost.
0 votes Thank Flag Link Thu Apr 5, 2012
If it was a condo the buyer probably didn’t walk away, his loan was probably rejected because of the underfunded reserves.

If you contact an attorney he is going to ask you to show how much you have lost, at this point you can’t prove a loss, not until you sell it for less than what this buyer offered. But in a short sale you wouldn't get anything anyway.

As for suing the HOA, you are a member of the HOA, The second question your attorney may ask is why you allowed the reserve fund to be underfunded. Just my guess.

Jim Simms
NMLS # 6395
JSimms@cmcloans.com
Financing Kentucky One Home at a Time.
Web Reference: http://jamessimms.com/
0 votes Thank Flag Link Thu Apr 5, 2012
Some buyers think the HOA needs to be 100% funded, which is never the case. Still...it is their right to cancel based on that criteria.

If your property still qualifies for FHA financing, meeting FHA guidelines for Reserves, then not likely. If your property was qualified under FHA guidelines at the time the buyer made the offer, but later and during escrow lost that status, could be another story.

If your agent noted in the mls that buyers could purchase FHA, and that turned out not to be the case, then the buyer might be able to sue you for monies he may have expended pursuing a purchase via an FHA loan based on erroneous information.

Funny thing about suing people...sometimes they counter sue as a result and you lose not only your case but the counter suit. If the buyer could not get financing due to the insufficient reserves or some other reason like a pending lawsuit, and that was not disclosed, he might want you to reimburse him for his home inspection, as example.
0 votes Thank Flag Link Thu Apr 5, 2012
Slk,
Very good points below, this is a legal question so always get that advice from an attorney. I especially like Chris's answer though; you may still be able to sell, just not necessarily to that buyer or for that price. Get back on the market advertise a pre-approved price and let the new buyer decide what they feel is "Underfunded.”
0 votes Thank Flag Link Thu Apr 5, 2012
One buyer walked away because of the bad financial situation of your HOA? Why do you think that means you "can't" sell? It just means that you can't sell at that value. The value of the property is less because the owners have not been paying into the HOA at high enough levels to keep it solvent. You can still sell it. The buyers are going to have to assume the bad situation of the HOA so the property is worth less to them. But, you CAN sell it.
0 votes Thank Flag Link Thu Apr 5, 2012
Slk,okay, so more than one buyer has walked. That makes my point even more. It isn't that you CAN'T sell it. You can, there is no rule or law that you can't. It is simply a value proposition. Any HOA that is funded at only 17% of suggested reserves is in for some huge one time assessments in the future. No one likes an assessment especially if you don't know when it will be needed, how much money will be needed etc. So, the bottom line is that they walk away from the deal. But, since you are the HOA (maybe only a fraction of it, but you are the HOA) you are fighting a losing battle. As owners you made bad decisions in the last few years when you underfunded your reserves and this is the consequence.
Flag Thu Apr 5, 2012
No, it's the third offer in 14 months. Offer 1 - buyer couldn't fund. Offer 2 buyer walked away-reserve. Offer 3 - bank rejected offer-too low. My realtor has had many, many inquireis, but as soon as any potential buyer see's that the reserve is only 17 % funded (per 2011 reserve study) they just walk away.
Flag Thu Apr 5, 2012
That's a legal question which would require you to consult with an attorney which you hire to represent you.

You do raise those an important concern. Without sufficient reserves some sales may fall through. Higher reserves generally require higher dues, although other factors can lead to low reserves. I once saw a condo that didn't even have $1,000 of reserves. It was very poorly run because the only reason they didn't have reserves is they didn't budget to create them, apparently thinking their relatively new building would remain new forever.
0 votes Thank Flag Link Thu Apr 5, 2012
I agree with Ron - this is a question for an attorney.
0 votes Thank Flag Link Thu Apr 5, 2012
An attorney will tell you no. First off, was that just the reason they gave you? The HOA review clause is an easy unilateral "out" for a buyer. Second, who is to determine that the HOA is underfunded? Unless there is a minimum funding criteria established in the bylaws, it would be difficult to make a case. Just my 2 cents.

Andrew Marzahl
http://www.realtorandrew.com
0 votes Thank Flag Link Thu Apr 5, 2012
This would be a question for an Attorney.
Just another reason why I am so fond of HOA's.

Good luck and may God bless
0 votes Thank Flag Link Thu Apr 5, 2012
No Kidding! If I only knew in 2007 when I bought what I know now!
Flag Thu Apr 5, 2012
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