Home Buying in San Ramon>Question Details

Ld, Home Buyer in San Ramon, CA

If there are unpaid HOA on short sale, should I, as a buyer, pay them off? Or there is a chance negotiate with a bank to low the price?

Asked by Ld, San Ramon, CA Tue Jan 26, 2010

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Ld,
I wouldn’t pay anything off unless you absolutely have to. Usually in a short sale the bank pays outstanding HOA fees because it's a lien on title and they have to clear it before the property can close. Sometimes they will try and negotiate them or refuse to pay, but I would have your realtor push back and see what they can do. Having you come up with the money should be the last option.

Erica

Erica Jones Starkey
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JSCA Real Estate Group
Providing Superior Solutions for Your Individual Real Estate Needs
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2 votes Thank Flag Link Tue Jan 26, 2010
SIMPLE ANSWER:

Why you as buyer pay seller past debt. Lender is aware of any paid HOA dues title company will handle this. You should never pay for past tax liens, HOA, contractors and etc.

Lynn911

Great Question
3 votes Thank Flag Link Mon Feb 1, 2010
LD ... I am in fact closing escrow this week on one with this exact scenario ... and we closed another just like it 2 weeks ago in my office. What we have done is have a strong conversation with the HOA management company and usually at least one member of the HOA Board of Directors ... before the offer is even written. We work to maximize the amount the hoa gets because that keeps the hoa viable in the long run, but we are very frank in saying they will not get everything they want ... and the seller has no money or prospect of money so we insist that the lien be cleared with no recourse back to the seller. The hoa gets 40 to 60% of what is owed and they get a closed escrow with someone new making the payments... that's a win for them.

We now have a fiure we can include in our Estimated HUD that goes to the lender with the offer that has been accepted by the Seller. That's a win for the lender because it reduces the unknowns and increases the likelihood the transaction will actually close

My real concern here is that you have also asked whether the lender is likely to allow a credit for repairs ... I presume on the same property. If you insist on asking for all of this stuff you will have gotten the lender to the point where they would find it easier to simply take the property back and then they don't have to deal with you.

Be Careful how you structure the deal ... that will be crucial to your success.

Good Luck
Steve Curtis
Broker / Owner
Windermere
925-408-0037
Steve@SteveCurtisHomes.com
3 votes Thank Flag Link Tue Jan 26, 2010
Hi Ld:

Normally right before a purchase contract is sent to the lenders to be approved, we will do an estimated HUD 1 (closing statement) which should show all unpaid fees, taxes, etc up till the estimated closing date) along with the purchase contract to the lenders to be approved. .

Then depending on the purchase price and how much is owed to the lenders, the lenders will decide either to take the offering amount, which may cover everything; or it might counter back to the buyer for higher purchase price and/or ask the buyer to pay for certain items, including the HOA fee.

So, I'd wait and see the terms on the short sale approval before I do anything.

Best,
Sylvia Barry
Marin, Sonoma, S.F. NorthBay
Frank Howard Allen Realtors
3 votes Thank Flag Link Tue Jan 26, 2010
Sylvia Barry,…, Real Estate Pro in Marin, CA
MVP'08
Contact
We can negotiate, bue we shouldn't assume that a short sale bank will automatically pay off ALL liens against the property (that may be the case with REOs, but not so with short sales).

If the property has had a lien filed against it by the HOA association, and that lien isn't satisfied, the HOA can institute foreclosure against the property, too.

Not all banks pay off HOA.

If the bank refuses to pay for HOA delinquent fees and fines, the listing agent and the seller should try to negotiate a payoff to the HOA. If the seller is unable to come up with the cash, one can ask the buyer to contribute towards paying off the HOA. As long as this arrangement is on the HUD and the bank agrees, that's another option.

This actually happened to one of my listings where Bank of America had both loans. Even before the property was listed as a short sale, the HOA had already filed a lien against the property and it was on record. BOA refused to pay the HOA. The buyer offered less than list price and also offered to pay a lesser amount that was owed on the HOA. The HOA attorney agreed to the payoff. The BOA accepted. This agreement was reflected on the HUD statement. And the escrow closed.

All you can do is try....and explore all possibilities.

Good luck!
2 votes Thank Flag Link Fri Jan 29, 2010
Hi Ld,

I agree with many perspectives below. However, the Listing Agent is the only person that can negotiate with the banks. A good listing agent will be working with an extremely pro-active escrow in estimating ALL the costs of the sale on the HUD-1. Typically, right before the negotiator submits the final package for approval they will request the most up-to-date information through a new estimated HUD. Escrow will ask for a final demand statement from the HOA and update all other debts. In itemizing all debts owed and costs in connection with the sale of the property (back HOA's, back property taxes, any other related liens, agent fees, closing costs, etc) on the final estimated HUD, the listing agent is automatically requesting that all these items be covered by the sales proceeds, by the bank.

Based on the Broker Price Opinion (BPO/Appraisal), the sales price offered on the buyer's purchase offer submitted and the bank's final analysis of all other factors, the bank decides what to pay for and what not to pay for. I've seen banks willing to cover everything on the HUD. But I've also seen banks that will only cover a portion of certain delinquent costs. But typically the bank is willing to cover some costs. The approval given is usually pretty firm. Although, if parties to the transaction are willing to buck up some of the cost difference you can usually negotiate to squeeze a little more out of the banks. Another place to squeeze money from the HOA. Many times the HOA is willing to take a little less that total debt owed.

So let's say the seller is $5500 behind on HOA dues. And the bank approves that only $3000 shall be allotted from the sales proceeds towards that debt. That leaves a $2500 shortage. As a buyer if you are getting the property at a great price and you have the funds it may be worth it to pay the difference. But let's say you can only cover $1000. The listing agent should go back to the bank saying essentially "look, the buyer is willing to anty up another $1000. We're going to loose the deal if we can't bridge the gap.

Sorry for the length... but another option, is for the seller/listing agent/buyers agent to all pitch in a little bit to get the sale to work. Especially on short sales where you are negotiating with a Fannie Mae / Freddie Mac backed loans because then the bank cannot reduce the agent's commission below the listing contract's agreed to commission unless it is over a 6% total. For each agent to throw in a 0.5% and drop to a 2.5% commission is not too much to ask. But that's me. I'm typically willing to throw in something when needed to make things work if it means a better experience for my client.

Good luck!!
Tara

Tara Steinke
Residential Sales & Appraisals
San Diego
619-384-6014
2 votes Thank Flag Link Tue Jan 26, 2010
Hi Ld…it really depends on the bank approving the short sale and how badly you want the property. Unfortunately there is no black and white way to handle such a situation. If the bank allowing the short sale will not agree to pay the back-owed HOA dues then it will be required to be paid at closing, either by the seller or you the buyer, in order to issue you clear title. And most likely, since the seller is short selling their home, they will most likely be financially unable to cover this expense.

This is not an uncommon practice by the bank involved as we have been seeing a lot more banks take similar stances on such additional property expenses. Many have even imposed strict policies regarding short sales and do not allow certain costs to be included in their debt charge-off; such being anything from home warranty and NHD report costs to unpaid HOA dues. We have even seen a few banks that will not pay any back property taxes as they are trying to limit their losses any way possible.

Talk with your realtor and find out who the bank(s) are that the seller is dealing with. Also discuss your possible options – Can you ask the seller to re-negotiate the sales price with their lender? Is it a possibility to negotiate the amount of unpaid HOA dues? Has it been difficult to negotiate with the seller’s lender? Is there any other way to cover the cost of the unpaid HOA dues?

Also, take the time to really re-evaluate the opportunity that you have – are you getting a good price for the property? Does this property meet your full satisfaction? Is there anything else available on the market that you would rather purchase? How are the inventory levels in your market?

In the area that we cover, San Jose and its surrounding communities, we are seeing a lack of inventory throughout much of our housing market. So if you decide to kill the deal because of a few thousand dollars worth of unpaid HOA dues then you might be making a very costly mistake.

Hope this helps!
1 vote Thank Flag Link Mon Feb 1, 2010
You've received a myriad of answers, some superb, revealing nuances, because of what Doug Bunez, said... it depends. The answer to your question depends on a complex of considerations.

So here's the book! This page about buying short sales will explain the answer to your question, it is part of a superb real estate primer and reference work that you'll use over and again as time goes by - bookmark it.
http://homebuying.about.com/
1 vote Thank Flag Link Mon Feb 1, 2010
By the way, if you are getting a FHA loan, FHA guidelines do not allow a buyer to pay back HOA dues as part of closing costs on the HUD 1.
0 votes Thank Flag Link Fri Dec 23, 2011
All great responses...nice to know that we have some smart and up to speed agents out there. Tara's answer in my opinion is the closest to the "Real world" scenario. Every short lender and every deal brings on it's own challenges and you have to be wise and creative to make some of these deals get completed.
In addition, as an agent representing the seller in a short, I mandate that HOA's, taxes, and any other community fees be paid and current throughout the process. This approach has suited me well..I have never lost a short listing to the bank...ever.
Remember, one of the upsides of short selling for the seller is the effect on their credit compared to losing their property to foreclosure. In most cases, a short seller can be healthy enough for purchase again in about 26 months from close assuming that mortgage lates and mortgage misses are the only credit hit they are taking. I just went full circle with a client. Short sold their home and they just purchased again.
So long and short of it to add my 2 cents, the sellers agent really needs to put it all on the table for the seller to evaluate on the front end of the deal before taking the listing, making sure the seller understands the reasoning of why it is so important for a smoother deal on the back end if HOA's and taxes are current throughout the process. They may be completely broke and don't have the means to keep current, but very adventageous if they can keep them current throughout.
Finally, just remember as well that the short lender wants to get a deal done just as badly as the seller and buyer do. You'd think that would not be the case, but the reality is that they really dont want to add another property to their books. They would much rather sell it to you and be done with it.
Good luck!
Greg
Greg Copland/Estate Agent
Web Reference: http://www.gregcopland.com
0 votes Thank Flag Link Thu Dec 22, 2011
When it comes to bank REO's (bank owned properties - already foreclosed)....the bank brings the HOA dues current....

As for a short sale, remember, the bank is NOT obligated by any means to accept ANY offer. They are being asked to take less than is owed on the mortgage..... they do NOT own the home, therefore, any other liens on the home, including HOA fees will be the responsibility of the buyer....

Do your homework, and get a sharp agent!
0 votes Thank Flag Link Sun Feb 7, 2010
Your only chance of getting HOA fees and liens paid by the bank as part of any short sale, is to include them on the initial net sheet. If you include tehm from the beginning, the negotiator for teh bank will be more apt to accept them as an intergral part of the costs in order to gte the short sale to work. this means the listing agent needs to get a payoff statement and include a payoff ofr at least 3 months from the date the short sale is submitted for approval, it should include any fines, interest, legal fees and monthly hoa fees. you should also include this figure on your propsed hud. If you try and add tehse fees afterwards, chances are they will be denied and the buyer will have the choice of paying them or not purchaisng the home through the short sale. I hope this helps.
Web Reference: http://www.ScottSellsNH.com
0 votes Thank Flag Link Sun Feb 7, 2010
Make sure you know all of the liens & the the amount of each lien attached to the home, before you make an offer on a short sale. You need to know that info; as, if the lender will only agree to negotiate its mortgage, those other liens will still be attached to the home; &, they will need to be paid off at closing (unless you can negotiate with the other lien holders & some won't negotiate). In OH, I would suggest that a Buyer in your situation pay for a Special Tax & Lien Search. Remember, this is a short sale, not a foreclosure. Be sure to discuss your situation with your Buyer's Agent.
0 votes Thank Flag Link Sun Feb 7, 2010
On short sales I've done that involved delinquent HOA fees, etc.

Bank of America did not approve paying for any HOA related fees, fines, etc even thought the HOA filed a lien against the property and it was on record. We had to negotiate with the HOA for a reduced amount. The buyer offered less than list price, but also agreed to pay off the HOA to get the deal done. It still came out as a good value for the buyer considering what he paid for it, and compared to other sales in the complex.

Wachovia, on the other hand, paid the HOA, no questions asked. Wachovia was also the fastest, the easiest bank to deal with when it comes to short sales.

It really does depend on the bank.....

Good luck to you.
0 votes Thank Flag Link Sun Feb 7, 2010
In my local area, unpaid HOA fees would typically be paid by the seller at the closing table, ie- taken out of the proceeds. It will affect the net amount going to the seller's lender, and thus may affect approval of the sale and purchase.
0 votes Thank Flag Link Sun Feb 7, 2010
Sure! Nothing wrong with you paying it to get the deal done. Don't be coerced in to buying or paying for anything you do not want. As long as your still getting a good deal, theres nothing wrong with paying the HOA.. You can also negotiate with the HOA for a reduced settlement.
0 votes Thank Flag Link Thu Feb 4, 2010
Typically the lender will pay off the HOA on most short sales. Your attorney will be aware of the situation & will handle it accordingly. I have seen where the lender will not pay the HOA & the purchase price was adjusted to reflect the difference.
0 votes Thank Flag Link Sun Jan 31, 2010
Dear LD,

Before agreeing to pay the HOA on a short sale I recommend you have your agent ask the listing agent if the seller has tried to negotiate a settlement with the HOA for less than what's owed, what the result was, and for documentary evidence of such.

This recently happened to someone I know and following this advice they were able to save about 50% from what they expected to pay. It's not unheard of for the HOA to accept 10 cents on the dollar as they are able to spread the cost among the remaining membership.

Feel free to contact me for further information.

Samuel Gabe
REALTOR/Service Consultant
Halstead Property Wheeler
671 Boston Post Road I Darien CT 06820
Direct: 203.656.6518 I Cell: 203.856.8399 I Fax: 203.655.9857
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0 votes Thank Flag Link Sun Jan 31, 2010
Like so much in the real estate world, the short answer is ... it depends. You should attempt to have the lender pay them by making sure they are on the HUD (title officer should do this, but make sure they know there is an HOA). I have heard of situations where the lender has refused to pay the delinquent HOA dues, and at that point is is up to the buyer, or agents, or seller (good luck with that) to pay.

Doug Buenz
The 680 Group
Alain Pinel Realtors
(925) 463-2000
Web Reference: http://www.680homes.com/
0 votes Thank Flag Link Sun Jan 31, 2010
The most important thing in all these answers is the what is on the HUD. Make sure that you are working with an agent, or other short sale negotiator for those reading this answer in other states. If they are familiar with short sales, they know what to put on the HUD. If the person had a loan that was not escrowing for taxes, there could be unpaid taxes as well, which should also go on the HUD.
What a HUD really is, is a closing settlement statement. The reason that the bank wants to see a preliminary HUD when evaluating a short sale is so they can see all charges that they will have to pay out of the proceeds of the sale, including real estate commissions and any other seller charges.
0 votes Thank Flag Link Sun Jan 31, 2010
Hello Buyer,

Two words for you 'Caveat Emptor' which means 'Let the buyer beware'. Homeowners Associations have the collection and enforcement powers similar to those in codo's and have a statutory automatic lien for unpaid assessments. That being said, the lien does not have to be recorded in the county land records. Title examiners or your agent (if you work with one) can check with the homeowners association to see if there are any such lien.

Most banks will absorb this cost of fees. However, some might try to get the seller to pay this, which will delay the closing. You should not let the property close until this issue is dissolved. Once a bank ceases property in foreclosure the bank is the owner, technically, and should pay the HOA from time of possession until the transfer of title to new owner.

If you know that there is a lien on this short sale property for HOA, and this is the only thing standing between you and the property. I would definitely negotiate to lower the price or have it completely paid by the bank. I would try the later first.

Hope this helps.
0 votes Thank Flag Link Sun Jan 31, 2010
why would you want to pay them off ?
they weren't your responsibility to begin with were they ?
.
an unpaid hoa is essentially a lein on the property.
.
if your title company is worth its weight ....then they will not allow you
to purchase a property with leins on it.
0 votes Thank Flag Link Sat Jan 30, 2010
The bank owes the entire amount if it is a short sale. Some banks pay the entire amount. I had to go to the attorney for the HOA or condo association to see if they were willing to accept a lower amount in a few transactions. A buyer has never had to pay HOA or condo dues in any short sale transaction that I have closed.
0 votes Thank Flag Link Thu Jan 28, 2010
Dear, LD
I agree with the most answers in this matter
You are the last person to be involved on unpaid fees and liens! Your agent should make sure at the closing all unpaid fees and liens are satisfy before you close
First is the listing agent job to provide all the information on the time manner and second and the most is your agent to fight and negotiate on your behalf!
None of the fees have to come from your pocked! If the Bank either Home Association cannot find the way to accept the loss and start fresh means that both agents didn’t done they job as supposed to be
None of my short sale failed because I have been day by day in touch with all the party’s involve,
So is your agent that is not doing his job properly
Good luck
Keti Ballhysa
Keller Williams of the Palm Beaches
http://www.ketifindhomes.com
561-339-6143
0 votes Thank Flag Link Thu Jan 28, 2010
I'll keep it simple, The lender will payoff recorded liens to deliver clear title! if the current balance is higher than the lien, someone else will have to pay the balance either seller or buyer, this is where you're Realtor & attorney have to do their job. I consider myself a pro in short-sales and every single one of the are different in terms of negotiating, Don't takle the problem alone get assistance from a Realtor that has short-sale experience!
0 votes Thank Flag Link Thu Jan 28, 2010
Ld,

Your options are:

1. Make sure the listing agent tells the bank BEFORE they approve the short sale. After they've approved it they are less likely to budge.
2. IF the bank won't negotiate - most will "HELP" then your next step is to talk to the homeowner.
3. If the home owner has no money (likely) then you could talk to the agents (OUCH!)
4. Finally, depending on the amount and the situation then paying it might make sense.

Hopefully the contract is worded in a way that gives you the power to negotiate this way. It might mean waiting 30 more days to get an answer from the bank.
0 votes Thank Flag Link Thu Jan 28, 2010
Joshua, I just closed on a short sale deal and I represented the Buyer. The Listing agent contacts me almost a week later and tells me that there was an error and the short sale fee was not on the HUD statement and sent me an invoice for the Buyer to pay. Although the Buyer agreed to pay this amount in writing, it did not reflect on the HUD and the HUD was approved by the bank/lienholder. Does the buyer have to pay this short sale fee now that the deal is closed and the amount did not reflect on the approved HUD? Please advise. Thanks!
Flag Sat Nov 7, 2015
Joshua Jarvis, Real Estate Pro in Duluth, GA
MVP'08
Contact
Hello, Ld

In the past, I had few short sale listings which banks paid for HOA, credit for buyer's closing cost . However, Bank's policy on short sale is constantly changing and every bank procedure is different . This is why it is important to have the total amount of liens on the property (not just estimated number ) and restructure the deal ( such as price reducing, payoff reduction ....)with all parties that bank will accept before submitting the short sale package to the bank. What stage of your short sale transaction are you in?
0 votes Thank Flag Link Wed Jan 27, 2010
Ld,

Generally I've gotten the lender to agree to pay the full balance the HOA demands, after you don't want to short change your future HOA. However if the seller's agent can't get the lender to agree than try to get it from the seller, or get the HOA to accept less.

Good luck.

-sunil

SUNIL SETHI REAL ESTATE

Sunil Sethi / Broker, President, REALTOR, MBA / SUNIL SETHI REAL ESTATE
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0 votes Thank Flag Link Wed Jan 27, 2010
If the lender has accepted your offer, and the HOA fees are a lien against the property, the fees have to be paid in order for the lien to be removed so the lender is paying the fees. The lender has to deliver clean title to the seller at close of escrow.

The fact that you are asking this question leads me to believe this is not the case. The HOA wants to collect the delinquent fees and will not transfer HOA records to the new buyer until the delinquent fees are paid. The lender does not want to pay them. That is negotiable with the lender and the HOA. The lender is taking a loss on their loan and paying HOA fees increases their loss. It is the same with unpaid taxes, and you certainly expect the lender to pay those. Lenders seem to arbitrarily decide what they don’t want to pay. If you are in love with the house, are getting it at a great price, just have to have it and no other house will do…pay the delinquent fees. If you are ready to move on if this deal does not work out, tell the lender “no” on the fees.

It takes lenders a long time to respond on a short sale offer. If you cancel out, it may be months before the lender has another opportunity to close this short sale. During that time, the HOA delinquency problem, along with all other financial delinquencies having to do with the property will only grow.

On the other hand, maybe the HOA will take a reduced amount rather that nothing. And nothing is what they may get for months to come if you cancel out on this transaction.

Your agent can go to bat for you in pushing back to the lender and the HOA.
0 votes Thank Flag Link Tue Jan 26, 2010
LD,

The best thing to do is to make sure that your agent is negotiating with the lender to cover as many fees as possible hoa being one of them, now depending on what lender you are working with most of them will cover hoa fees depending on what the purchase price has been negotiated. When your agent gets their final hud-1 closing statements that is when you can negotiate with lender for them to pay off the fees or to split them 5-/50 etc, hope this advice was helpful.

Best Regards
Bron Taj
Realtor
Century 21
DRE#01816976
0 votes Thank Flag Link Tue Jan 26, 2010
Normally the lender pays this off, but after the first of the year, Bank of America stopped doing this unless the HOA had a lien against the property. If all else fails and you need to pay the HOA to close, ask your agent to negotiate with the HOA to remove late fees and other administrative fees. Every little bit helps!
Web Reference: http://shortsalesheep.com
0 votes Thank Flag Link Tue Jan 26, 2010
The Hagley G…, Real Estate Pro in Pleasanton, CA
MVP'08
Contact
Whoever is negotiating the short sale with the lender should ask them to pay for all outstanding fees. Lenders will at times ask that either the buyer or seller pay for certain items, but it can be negotiated to the point where the lender covers it all. Playing a little hardball with lenders can go a long way.
0 votes Thank Flag Link Tue Jan 26, 2010
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