HOA foreclosed on and sold a house that I was in escrow on to purchase.

Asked by Bob, Las Vegas, NV Tue Nov 20, 2012

An HOA here in Las Vegas foreclosed on and then sold at auction to an investment company for a small fraction of what the house was worth. I have been in escrow on this house for over a year. The seller filed for bankruptcy protection so I could not close on it earlier. The house has 2 mortgages on it from the same bank. After the bankruptcy court released the house back to the bank to be sold, the HOA then foreclosed and sold it for less than 1/10 of its value. This same investment company has bought 3 other houses in the month of October, 2012 - all for less than $9,000 from different HOAs. Does anyone know if the bank's mortgages were cancelled with the sale, or are they still active? Was the sale legal and is the investment company the real owner now? I spent around $1400 for the appraisal, inspection, HOA transfer docs, etc. Do I have any recourse to sue to get my money back if it turns out that I don't get the house because of this?

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Steven Goldm…, Agent, Las Vegas, NV
Tue Nov 20, 2012
Good day Bob,
You should have never, ever spent any money before the Approval Letter(s) has been received from all lien holders and the Seller has signed off that he is in agreement to the terms of the sale.
The sales of HOA's are legal. You, as a potential Buyer do not care about the existing loans. They do not concern you.

If in Nevada, the state law is that the Seller must pay and provide the HOA resale package to a Buyer. I am not sure how you got stuck with that bill. If the Seller or their agent made you pay for it, that is a violation of Nevada State Law. Period. End.

The appraisal would not have been ordered until the property could be transferred. You should not have that bill.
A home inspection is done after the approval letter(s) is/are received. If the HOA did not grant an approval letter for the sale, these should not have been completed.

Hay, wait one moment !!!!!!!
If the Seller completed a BK, there is no HOA bill owed. The BK attorney should have wiped out the HOA bill during the BK. Why did the HOA foreclose?

The real issue is that the bank now can go after the Seller (Borrower) for the total amount due. They have 6 years as they are not the foreclosing entity to file a lawsuit. The seller also gets no deficiency forgiveness due to the no sale. The seller may want to check with their CPA.
The other option of the Borrower is to file a BK if the bank goes after them and if they are eligible for a BK. A BK will not help with IRS tax issues.

As you can tell, there is a lot more to this story, although the answer is simple. You are out of luck getting the property. Go get another property and learn from the past errors. Locate Realtors that are familiar with short sales and allow them to guide you through the process.

Steven Goldman, CRS
Broker Salesman
Certified Distressed Property Expert (CDPE)
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Realty One Group
10750 W. Charleston #180
Las Vegas, NV 89135
Direct 702-242-1372
Fax: 866-286-2099
E-Mail: crssteven@teamgoldman.info
2 votes
Nadia Lewis, Agent, Las Vegas, NV
Tue Nov 20, 2012
I am very confused how this could happen. If the buyer received a title insurance policy at the time of the purchase, which they would HAVE TO if the purchase was financed, then the title insurance company would not have let the sale close without the delinquent HOA dues (including late fees, etc.) being paid off in full at the time of the closing.

If the buyer looks through your escrow documents they should most likely have a title insurance policy, and by contacting that company the buyer should be able to find out what the heck happened.

Your purchase agreement should have contained verbiage stating that title would be passed free and clear to the buyer, and that HOA dues and property taxes would be PRORATED TO THE CLOSE OF ESCROW. If the seller failed to pay a delinquent amount, they may have been in breach of the contract, unless the seller's addendums contained language to negate the seller's responsibility to pay these items current as of the closing date. I have not heard of any REO sellers doing this, although I suppose it is possible.

You can start with contacting escrow and the title company to find out who screwed up, but if the HOA is dead set on pursuing the buyer for unpaid HOA dues, you want to deal with this head-on ASAP. It probably would be wise to get an attorney. Perhaps you can get one to simply write a letter to the HOA for a couple hundred dollars, and such an action may be enough to get them off the buyer's back without any further action and without any significant expense.

Hope this works
1 vote
Steve, you make a very good point about the HOA foreclosing after the bankruptcy. Seems to me you are right - the judge should have cleared the HOA liens. But, maybe the HOA believes that its liens are on the house and they can sell the house and are first in line to be paid - rightly or wrongly . Just to be clear, the seller filed for bankruptcy right before escrow was to close and after I had paid for everything. Prior to that, all the agreements were in place, including the short sale approval letter and everything was properly signed.

Does anyone believe that the HOA or buyer acted improperly? They sold the house for under $10,000, and my offer for it was $140,000. The appraisal came in a little low at $135,000. Should not the seller have a duty to seek the best price possible in order to satisfy the underlying mortgages?
Flag Tue Nov 20, 2012
To Steve and Mark - I had a short sale approval letter from the bank. It was very clear about how much they were willing to accept. I did not and would not have proceeded without it. I have been told that the seller is supposed to pay for the HOA resale package. This is an issue I will be discussing with my agent. I think she said that it would help expedite the process if I paid for them up front. But, I was not aware that the seller was responsible for these fees at the time. Keep in mind that the seller has no money and could not even afford to turn on the utilities - which I also paid for in order to expedite the inspection. I ordered the inspection after the appraisal.
Flag Tue Nov 20, 2012
There seems to be a little misunderstanding. I never owned the house. This was a short sale where the owner defaulted on both the mortgage and was declared in default on the HOA dues and fees as well. I was trying to buy the house when the HOA undercut me and the bank that holds the mortgages and sold it to a 3rd party.
Flag Tue Nov 20, 2012
aftervince19…, , Greenville, NC
Sun May 11, 2014
Don't let a foreclosure stop you from buying a new home. See Comstock if you have a buyer in need. They have a flexible credit loan. This program assists homeowners who have recently been through a foreclosure, short sale or have recently emerged from bankruptcy.

0 votes
Lynn Burke, , Las Vegas, Las Vegas, NV
Tue Jul 23, 2013
My understanding is HOA dues are not dischargeable in BK. But if the bank failed to pursue their interest in the home why would they have 6 years to pursue the deficiency after foreclosure? My understanding is they have 6 months for the first mortgage after foreclosure. The law reads after foreclosure but doesn't specify who the foreclosing party is. Just states after foreclosure.
0 votes
Michelle McD…, Agent, Henderson, NV
Tue Jul 9, 2013
If you need a real estate attorney to handle your HOA, HOA auction-quiet title or evictions,Short sale, foreclosure or mediation needs you should call Robert Noggle, Noggle Law PLLC http://www.nogglelaw.com
0 votes
Renee Burrows, Agent, Las Vegas, NV
Sun Dec 9, 2012
If you signed the short sale addendum it clearly states that the seller may cancel the transaction for a myriad of reasons. Therefore your due diligence money is gone.
0 votes
That is entirely the point. The seller did not cancel the sale. The HOA sold it. Not the short sale bank and not the seller who had filed for bankruptcy. I claim the HOA acted improperly. They knew a sale was in progress and did not notify me of their intended sale. That is a violation of the intent of the law regarding foreclosure sales. Furthermore, they made no effort to sell the property at anywhere close to the actual value of the property which is at least $140K. They sold if for $9K. This smacks of corruption and under the table payoffs. I have already filed a complaint with the DA's office over this. An owner of real property should have a duty to obtain the best price possible in order to satisfy the underlying lien holders. They did not do this, so I think the HOA is vulnerable to a law suit.
Flag Sun Dec 9, 2012
Mark Fleysher, Agent, Las Vegas, NV
Tue Nov 20, 2012
WOW, can I ask who is representing you as your Agent??

Does your contract have a short sale addendum? It should, read it. Hopefully it says your due diligence starts upon short sale approval, not opening escrow.

You should not have spent any money on the property prior to short sale approval.

I'm not aware of any lenders who order appraisals prior to short sale approval; talk to their managers.

Nevada law requires the seller to pay for and deliver the HOA Resale Package, no negotiations applicable.
0 votes
Ron Thomas, Agent, Fresno, CA
Tue Nov 20, 2012
Kudos to Steven for his answer!
First and last; I would never let my client pursue a Shortsale with a 1st & 2nd; I've seen too many times what can happen:
Let them go away and fight it out and go after it when it becomes an REO.
0 votes
Scott Godzyk, Agent, Manchester, NH
Tue Nov 20, 2012
The original mortgage(s) are still valid and must be paid off or negiotiated. The HOA is securing their interest by completing the foreclosure. They should have made the sale part of the release of bankruptcy but it doesnt seem they did. You may not have a recourse. When buying a short sale you should not have spent that much money especially if it was in bankruptcy until you got an approval by the sellers bank
0 votes
Please understand that I was in escrow on this house for several months before the seller filed for bankruptcy. I got the short sale approval letter from the bank and only after that did I go out of pocket on the expenses.
Flag Sun Dec 9, 2012
Douglas Mill…, Agent, Las Vegas, NV
Tue Nov 20, 2012
Yes Bob,

The HOA can foreclose on a property for what is owed on the back HOA dues. The bank would still be in first position on the property and if the investment company wanted to sell it they would have to paid what is owed on any outstanding mortgage's to get clear title. Sorry but that is the risk of short sales and you don't have any recourse.
0 votes
So, I guess I don't quite understand something here. If it is legal for the HOA to sell the house without paying off the underlying lien holders, then how come it is not just as legal for the entity they sell it to to avoid paying off the lien holders as well when they sell the property? I don't understand how any of this can be legal. At the very least, it sets up a very dangerous precedent. I have contacted the DA's office over this and I am looking to sue the HOA because I believe the HOA acted improperly. The house in question was also under a bankruptcy court's jurisdiction. So, not only were they wrong about selling the house without contacting me - which according to the intent of the law regarding foreclosure sales - they have an obligation, but they also interfered with the jurisdiction of the bankruptcy court. I would love to see how a judge or jury would rule in this case. At the very least, such a prospect should entice them to the settlement table...
Flag Sun Dec 9, 2012
Myra Gouger, Agent, Las Vegas, NV
Tue Nov 20, 2012
Yes the sale was legal. You also have no recourse to sue anyone. The investment company is the real owner now.
0 votes
My son is going through the same thing. They were behind on their HOA dues $1500 and his HOA bought the house for $10k. He has 90 days to move. He has called and tried to set up an appt. but he received voicemails. I believe that this is a fraudulent way for an HOA to make money. My community I live in has been approached by our HOA asking us if we would like for them to start buying up the houses in our neighborhood which inturn would make us landlords. I think that someone found a loophole in the system and is using it to make money and take advantage of a bad situation instead of helping. Everyone knows Las Vegas housing is underwater and we have this on top of it. Its just shameful.
Flag Fri Jun 20, 2014
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