Home Selling in Sacramento>Question Details

Vwsales, Home Owner in Roseville, CA

If HOA forclosed and then purchased at auction, are they now responsible for the 1st lein (1st is upside down $125K & current)?

Asked by Vwsales, Roseville, CA Sun Apr 29, 2012

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Bruce Slaton’s answer
I'm following one instance of this situation where the HOA foreclosed and took title last year in Carmichael , the condo now has a notice of default with estimated sale around July, so we'll have to wait and see how it unfolds....the core though is that the bank will eventually foreclose and take title BUT it may just be a negotiation tactic....really too early to tell effectiveness as it hasn't been happening region wide....keep in mind HOAs each have different legal representation and different attempts to test the market...the Florida situation just started happening the last few years.

Then you have to pose the additional question which I thought of when this started occurring, IF the HOA takes title for a year, you would think they would be responsible for th HOAs during those periods.

I haven't seen a reason that would prevent them from evicting the occupant OR start collecting rent from a tenant in possession once they gain title, this may be the focus, to recoup some of the money they stand to lose, maybe they just let it go once the banks foreclose

Bruce
0 votes Thank Flag Link Sun Apr 29, 2012
We have started seeing this trend that started in the Florida condominium market and have recently seen it started in Sacramento. While I am not an attorney, essentially what we are seeing is the HOA will foreclose and then negotiate with the 1st to remedy the outstanding amount. I've recently seen it in several condominium complexes in Carmichael and in my conversations with the HOA represenative (running an condominium website, I need to know about new trends coming to the Sacramento market), they have said their attorneys are taking the same position that is happening in Florida.

Now the approach that is happening in Florida has been that the HOA will take title and then if the property is vacant they will start the process of renting it out with the disclosure that the property could eventually be foreclosed by the bank, if it is occupied they will start evictions and then rent the unit out to recoup as much as they can before the bank forecloses.

In some cases the bank will take months if not years to finish the foreclosure process. The bank in some cases will also settle with the HOA to make sure they can have clear title so its a win win for the HOA.

This has only just started happening in CA so its too early to see how it will actually play out.

The HOA can foreclose much easier than a bank which may be another reason you may start seeing HOAs foreclose first and negotiate with the HOAs for title, an HOA does not have to prove ownership and they are not involved in the robo signing issues we have had. So again, not being an attorney I could see how a bank who had chain of title issues may allow an HOA to foreclose and then negotiate with the HOA to give them title.

Its almost the same as if you would quit claim your condo to your uncle with a 1st lien on it. Your uncle would "own" the unit until the bank foreclosed on the lien and the action would be against you still instead of your uncle. They may list the uncle in an unlawful detainer later but the liability for the loan would still be against you.

Google HOA foreclosures in Florida and I am sure you will see the trend that is going on.

Best of luck

Bruce Slaton
Realty World eCurb REALTORS
http://www.SacramentoCondos.com
2 votes Thank Flag Link Sun Apr 29, 2012
The first lien is not wiped out if the HOA takes title.

Elizabeth Weintraub
Broker-Associate #00697006
Lyon Real Estate
Your Sacramento Short Sale Agent
2 votes Thank Flag Link Sun Apr 29, 2012
Interesting info that Bruce shared here. Just not sure if following Florida, a judicial foreclosure state, is going to work for the HOAs here in CA since judicial foreclosures take a lot longer than the typical CA non-judicial foreclosure and the HOAs in Florida have more time to recoup their losses by collecting rent for a longer period of time. Furthermore, unlike California, Florida is one of the super lien states which may also factor into the HOA's decision making process. Like Bruce said, only time will tell how this will play out in CA.
1 vote Thank Flag Link Sun Apr 29, 2012
Ute Ferdig -…, Real Estate Pro in Newcastle, CA
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Well, the HOA would acquire the property with the first lien in place. While they are theoretically not responsible for paying the loan that is secured by the first lien, if the loan defaults, the first can foreclose. Given that the house is $125,000 upside down, it makes no economic sense for the HOA to foreclose. Although the HOA may decide not to foreclose, defaulting on your HOA dues could possibly be considered a technical default on your mortgage similar to not paying your taxes, insurance or failing to properly maintain the property which in turn could entitle your lender to foreclose on the property even if you are current with your mortgage payments. You should consult with an attorney who can give you advice after reviewing your loan documents.
1 vote Thank Flag Link Sun Apr 29, 2012
Ute Ferdig -…, Real Estate Pro in Newcastle, CA
MVP'08
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