Home Owner Associations and Short Sales

If you have not had to negotiate with a Home Owner Association (HOA) regarding past HOA dues in order to get a short sale closed, well you haven’t lived. It is, seriously, one of the more frustrating tasks that we have to handle. It seems that more than half of the HOAs have some hard and fast stance on not accepting anything but a full payoff of the past due amount. I have had a situation where we were racing to get a short sale approved in time to beat the foreclosure sale. We got it approved but had to deal with the HOA in order to close. In that case the HOA would not budge on their $12,000 HOA past due amount…even when we offered them $9,000. The property went to foreclosure and the HOA lien was wiped out so the HOA ended up with $0.

I have also seen a drastic increase in HOA’s filing foreclosure actions. I scratched my head at first trying to figure that one out. North Carolina is not a Super Lien State. In a Super Lien State the HOA’s lien jumps ahead of the mortgage in a foreclosure so they are always paid in full. In North Carolina the HOA lien falls in line behind the mortgages/deeds of trust and always gets extinguished in the foreclosure. So why foreclosure? As you may have noticed, the banks are not rushing to foreclosure for various reasons. We are seeing banks taking a year or more to even begin the foreclosure process. This means that the HOA can take title to the property, rent it and continue ignoring the mortgage(s). When the bank finally forecloses and title is transferred to bank, the HOA may have pocketed enough rent to catch up on the HOA dues and then some. This is either smart or fraud.

The bottom line is: Pay your HOA dues even if you have stopped paying the mortgage. The bank seems to have wised up and decided that a homeowner living in the property, not paying the mortgage and keeping the lawn mowed and the AC on is better than an empty neglected house. In that situation the homeowner is enjoying the use of the property so they should at least pay the HOA dues. By not paying them their fellow neighbors are the ones getting hurt and not the bank. Additionally, by not paying them you may be precluding a short sale if you don’t have the cash to catch the HOA dues up completely at closing.