Unpaid HOA Dues Between Sheriff Sale and Purchase. Who's Responsible After Closing?

Asked by Nubrandon, Minneapolis, MN Thu Apr 11, 2013

A bit of a sticky situation here. I understand that the previous owner is responsible for dues before bank took over & typically the bank is responsible for dues after the sheriff sale until they sell but in this case, there is still an amount due. It turns out that the previous treasurer was stealing from the HOA and kept no records. Because of this, he was dodging the bank/title co when they tried to pay off. He has since been sued by the HOA and lost after stealing around 40k. Now that the HOA has their act together, they are claiming that I owe the amount from the sheriff sale until my purchase, some 5k. I am certain the records were poorly kept & non-existant with the previous treasurer. I know I should talk to an attorney & I will but I am looking for a general answer. Thanks in advance for the help.

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Russ Douville, , Saint Paul, MN
Mon Apr 15, 2013
I'm so sorry to hear that.

You can think of the sheriff's sale as transfering ownership interest from the owner to the foreclosing entity, and your closing as transfering ownership from the foreclosing entity to you. So technically, the dues being paid or not, or stolen or not, before you closed shouldn't be your problem. That doesn't mean some party here won't try to make it your problem.

I would suggest getting legal help, but I would also ask if it's worth it. Mortgage lenders (like yours) don't like to let the borrower (you) assume any previous or outstanding leins against the property and the title company does their best to see that there are no undisclosed leins, but it happens on occasion. You could check with the title company, and see if you have title insurance, and if it would help in this case. You may have tried this already, but if you haven't yet you may look in to negotiating a lower payoff with the HOA. They may settle for less knowing that it will be a hassle getting the money from you (since this really isn't your fault), and even harder getting it from another party.

Finally, you have to ask yourself if all this is worth it. $5k is not an insignificant amount of money for any of us, but keep in mind legal help isn't free, and all of this will involve time and hassle. Maybe you just pay it even though you know you're right and they're wrong, and you can get on with enjoying your new home without worrying about the threat of foreclosure.
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Mack McCoy, Agent, Seattle, WA
Fri Apr 12, 2013
In all likelihood, you are.

I think that in every state of the union, the current owner of a condo is responsible for the HOA fees, and the HOA has a statutory priority lien for six months' worth of delinquent fees. Since it is a lien, it has to be cleared up by the current owner or it can be foreclosed upon, and when you take title - you are the current owner, and you risk being foreclosed upon unless you pay it off.

Yes, of course, they CAN go after other parties, but at the end of the story - if that lien isn't satisfied, the HOA can foreclose, and they're not going to foreclose on "other parties," they're going to foreclose on YOU.

Also - it doesn't really matter how good they are at bookkeeping. All they need to do is state that the dues have gone unpaid for a period of time, and the burden of proof is on . . . you, the current owner, to prove that they have been paid.

If you find out differently from an attorney, we'd all like to hear about it.

Best,
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Elizabeth Fu…, Agent, Wayzata, MN
Thu Apr 11, 2013
Your closer should have defined this better and the idea of this going on and on is troublesome to me on several counts: Our laws on common interest communities and the fiduciary responsibilities of Boards and management companies should be more closely enforced in these situations. You do need to talk to an attorney who specializes in CIC law and it wouldn't hurt to check with the attorney general's office as well. Any suit taken up should include the loses of all the homeowners. As a CIC HOA's Board member, it concerns me that the lender who owned the property was allowed to sell and close without this issue and all its details clarified. I do not think this is usual. I have had a real estate license for many years and I do not think this lack of information to you regarding your obligations as a purchaser were as well documented at the various stages of the transaction as one would require. I know my colleague who answered this first suggested that you may still have acquired a bargain. That could be true or untrue, but it has nothing to do with a legal transaction, clear documents that spell out obligations, and closing documents that cover all the legal and agreed upon points including charges, acceptance of obligations agreed in the purchase agreement such as buying as is, or accepting code or compliance issues or repairs as well as seller or buyer paid closing or other costs. I wish you well. As you learned, foreclosure or short sale purchases are not like the teddy bears' picnic. Liz 612-986-4105
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Susan Hoffla…, Agent, Shoreview, MN
Thu Apr 11, 2013
Hi, Nubrandon!
I just had a situation like this with clients who purchased a foreclosed property. No past due association fees were disclosed to us, even though we submitted the proper forms.

Since this was a foreclosure and it was a FNMA loan, the bank's practice was NOT to pay those fees. That is fairly common, that the banks do not pay the fees in arrears, though I'm sure there are exceptions.

So, generally, with the knowledge that there are past due fees in the amount of $5K, the bank would generally price the property accordingly to make up for the fact that the buyer is going to have to take that on when they close. I don't know if you got a great deal on the place or not, but that may be what the "compensation" is for having to shoulder the fees.

BUT, you're right, I will suggest you consult an attorney since there are other, more dire legal issues at play in this instance.

Good luck!
Web Reference:  http://www.homestosellmn.com
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