I Owe My HOA A Lot Of Money, But Am Paying Current Dues, Can They Still Foreclose?

I Owe My HOA A Lot Of Money, But Am Paying Current Dues, Can They Still Foreclose?

 

I should be writing a blog a day, at least. Why? Because I am recuperating from foot surgery and have to spend as much time as possible in a prone position, feet elevated, toes above the nose, for the next few weeks. With those doctor’s instructions, it’s hard to run around too much. I had to suffer the requisite 3-4 days to get over the hump with pain medication. It’s not good to make big decisions or give legal advice on drugs. But I’m back now, with lots of time to write on my hands.

 

So, this blog is about options you have, and your Association has, if you have become seriously behind in making homeowner assessment payments. You might ask this: “I owe a whole bunch of money to my HOA. What will happen if i ignore the debt and only pay the current assessments?”

 

The further behind a person gets, the harder it is to catch up, so my first piece of sage advice is to do whatever you can to avoid going into default on your homeowner assessments and if you get behind, do the best you can to enter into a payment plan to catch up, and follow it!

 

You may let the obligation slip to the bottom of the pile for a while. But the reason that doesn’t work is that while you are looking the other way, the debt grows, sometimes exponentially when it gets moved into collections, and you are responsible for the costs involved in collections.

 

So here is the email that triggered this blog:

 

“Greetings, Ms. Grimm ~

I’m writing to ask if I can buy some advice from you.  My HOA is threatening to foreclose.

  • I owe approximately $30,000 in delinquent dues.
  • I resumed regular dues payments about four months ago.
  • [My home is not nearly worth what is owed on it, by a couple hundred thousand dollars.]
  • HOA filed a lien as soon as the balance exceeded Small Claims Court limit.
  • HOA obtained a judgment.  They’re also trying to collect through garnishment, bank levy, etc.
  • HOA has no money to pay off the 1st and 2nd.
  • I don’t know if [law firm doing the collections] is aware how under water this property is.

My question is, can they actually foreclose?  If yes, what’s the process?”

 

The answer is “Yes, they probably can foreclose.” This assumes the CC&Rs for the Association allow foreclosure as an option, which they generally do, and that all proper steps were followed. The named firm is likely to know and follow proper protocol.

 

I don’t know if the judgment imposed in this case includes the right to foreclose but in any event, an HOA can pursue two avenues, collecting of the personal debt through garnishments etc., and the foreclosure path at the same time until the complete outstanding debt is collected.  However, once the outstanding debt is collected or the foreclosure sale is held, there can be no more collection action.

 

So, it might be that the HOA would want to foreclose on a property if the owner owes debt and it looks like they will not ever be able to pay the entire judgment. And it might be that an owner would want the HOA to foreclose to move on without the judgment hanging over their head. When the sale is held, the bid is set at the amount owed to the Association. Chances are no one will buy the property at the sale if it is “underwater” (which means there is more owed on the property than it is worth). If no one buys, the HOA ends up with title to the property for the value of the debt. The HOA can’t pursue any debt against the Owner after that. Then it has to decide if it will rent out the property to recoup assessment debt. Since there is a 90 day redemption period when the foreclosed party can buy back the property for the outstanding debt on it, the HOA cannot generally get title insurance to sell it, and there are some risks to renting the property which are complicated and I will not go into. And, if the HOA does not pay the outstanding mortgages, which it is not likely  to do – and would not be smart to do on underwater property, the lender will at some point foreclose the mortgage and sell the property out from under the HOA.

 

If the HOA is receiving the monthly assessment payments AND some reasonable portion extra toward the outstanding debt, it is probably less likely to decide to go to sale. The HOA benefits from the incoming funds for the current assessments. And it continues to have the right to try and collect the outstanding debt at the same time. If it “throws good money after bad” to get to the sale, it may never collect that money. If it sells and rents the property out, there are risks in that, and tenant rights come into play as well, it might be safer to accept the current assessments as an incoming cash flow with a wait and see attitude to see if the owner comes up with more cash toward the outstanding debt.

 

There are other factors considered by HOAs as well. Is the owner trying to catch up? Do they deserve some time to do so? Does he or she have the capability of catching up? Are the owners just playing games?  Are they collecting high rent and just paying the current assessments and pocketing the difference? If the owners or tenants are problem neighbors, the HOA might go to foreclosure knowing forgoing the rest of the debt just to get rid of the owners or tenants.

 

There are people who think if they abandon the property that is underwater in an HOA they will be rid of the problem, getting away “scott-free” (except for the credit blight of course) because that’s what seems to happen with the mortgage lender. The lender gets the house, and gets off your back. Not the case here. The HOA can choose to try collecting other ways and hold the foreclosure sale option over the owner’s head at the same time.

 

There are people who think as long as they pay the current assessments or a portion toward the debt, the HOA cannot foreclose. That, too, is a fallacy.

 

One thing people do not realize is that all parties are better off if they can find some reasonable grounds for settling HOA assessment debt.  Fighting vigorously just raises the stakes and causes further entrenchment. As in family law (I used to work in that field as a legal assistant before becoming a lawyer), parties often at some point see that all the available money is going to the attorneys or others and come to realize that the bleeding has to stop. I witnessed one such case where the parties’ attorneys continued to “duke it out” (argue) in the courtroom while the husband and wife went out into the hall and worked out a settlement between themselves, in desperation of finding a way out of the legal system.

 

 

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2 Responses to I Owe My HOA A Lot Of Money, But Am Paying Current Dues, Can They Still Foreclose?
  1. sport doctor
    September 18, 2015 | 4:14 pm

    Very good site you have here but I was wondering if you knew of any discussion boards that cover the
    same topics discussed in this article? I’d really like to be a part of online community
    where I can get comments from other experienced individuals that share the
    same interest. If you have any recommendations, please let me know.
    Thanks a lot!

    • Beth Grimm
      September 25, 2015 | 5:42 am

      I would love to give you some great discussion boards. I used to follow more of them but I am just so busy with everything I am doing I can hardly keep up. I welcome suggestions from readers though.

      If you get on one and the posts are mostly negative, it is probably more of a gripe site. I would stay away from those. In my view they are a waste of time.