HOA
Anyone familiar with processing & negotiating ShortSales
are probably familiar with HOAs, and the problems they can present. Perhaps the greatest hurdle to overcome or to
realize, is that HOAs are not necessarily financially or legally informed about
the Foreclosure process.
Without getting into a drawn out explanation about the
function & purpose of HOAs, suffice it to say that they are a tool of the
neighborhood homeowners, used to “manage” the community. HOAs are typically responsible for
maintenance services (trash, community pool, snow removal, etc.), and are
headed/managed by a board of directors, composed of homeowners from the
community. Needless to say then, that
the makeup of the HOA board is a hodgepodge of different professional types. One board member might be a clerk at a
grocery store, another may be a minster of a Church, while yet another could be
a telemarketer. Regardless, it is a safe
bet to assume that very few of the
HOA board members are versed in Real Estate, let alone Foreclosures &
ShortSales.
In this depressed economy, more and more homeowners (&
their properties) are going belly-up, consequently forcing their HOA accounts
into delinquency. Since most neighborhoods have HOA’s, most ShortSales then will
inevitably have an HOA lien or two attached to the property.
Naturally, the HOA will try to collect their back-dues from
the homeowner, but often times come up empty handed. This is because the Homeowner is in distress,
and is having trouble even making their mortgage payment! Since the Mortgage
Company is the big dog with the 1st position lien, they will tend to
get more attention from the homeowner than the HOA; indeed, as the Bank is
probably owed more anyway!
Up until 2005, in Colorado, HOAs were subordinate liens, and
were routinely collecting $0.00 at Foreclosure Auction despite the amount they
were owed. This is/was a function of the Auction itself; if the 1st
lien forecloses, they are entitled to everything they are due. Only after the 1st
lien collects 100%, will any funds be disbursed to junior liens. Thankfully for CO HOAs, their lien priority
in Foreclosure Auction changed to “super-lien,” putting them ahead of the Bank.
However, even though they have “super-lien”
status, It
was found in First Atlantic Mortgage, LLC v. Sunstone North Homeowners
Association, 2005 WL 427700
(Colo. App.), that total payoffs cannot exceed more than 6 months of
regular assessments at Foreclosure Auction, regardless of the amount owed. The remainder will be wiped out.
As most HOA board members are not familiar with their “super-lien”
status, it is the obligation of the ShortSale processor/negotiator to inform
them properly, in order to ensure a speedy review of the offer. Keep in mind though, that the HOA will get
6-months of dues by default, so it is also the responsibility of the negotiator
to present an Offer that is attractive enough for the HOA to allow the Sale.
