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RobertR5
(Florida)

Posts:1

02/15/2009 8:42 AM
To all HOA's and Condo Associations Recently, our property managment company made the suggestion to us, the homeowners association, that because banks and lenders were now taking much longer than previously to get through the legal process of foreclosure, that instead of waiting on the banks or mortgage lenders action to foreclose on the unit in default, that the association do its own foreclosure against the unit to take title...and force the banks or lenders hand to quicker action. It was then suggested that in the time that the association held title to the unit, the association could rent out the unit to recover some part of it's delinquency on the unit, minimizing it's losses. The Property Management Company and the Attorney had met and were recommending this strategy to all accounts of the Property Management company, stating that this was the direction that all associations were now going in. A word to the wise. DO NOT ACCEPT EVERYTHING YOUR PROPERTY MANAGER OR LAWYER SUGGESTS as gospel until you drill down and do the research for yourselves. The devil is always in the details. Here are a few things to consider about this strategy... 1. Cost of repairs and cleanup going in and making ready for rent. 2. Cost of maintenance of appliances. 3. Ongoing maintance costs while unit is rented, plumbing, electrical, AC, etc. 4. Cost of repairs and cleanup when unit vacates in order to sell unit. 5. Disclosure of code deficiencies since the unit was built...i.e plumbing/electrical, and upon sale becomes the associations responsibility to either either disclose or bring up to code. 6. Disclosure of foreclosure status to prospective renters would limit interest in unit as any tenant would have to immendiately vacate upon sale of unit. These units are going to be difficult to rent for a short period of time. 7. The association would have to purchase a separate insurance policy for hazzard, windstorm, flood, etc for each unit as the master policy most likely does not cover units. This could cost $1000/unit. In the event of fire or flood or windstorm, the board would be liable for damages and repairs and could not take the financial risk of renting out a unit with out a separate unit policy. 8. In the event the lender should foreclose the association just shortly after the association forclosed the unit owner and took title, the association may not make adequate $$$recovery and could spend thousands of dollars or more in dealing with the additional expeses. Just a word to the wise....rsr.

SheliaH
(Indiana)

Posts:373

02/16/2009 8:32 AM
Thanks for the tips. In our HOA, most of our foreclosed units were taken by the mortgage company and the homeowner had already moved out. We haven't had a situation where there was a tenant living in a foreclosed unit - if we did it, I would think we'd ask the tenant to send his/her rent payments to us so they'd be applied against the unpaid balance. This way, some money's coming in and there's nothing like an income cutoff to get a delinquent homeowner's attention....

GeorgerwilliamsW
(Indiana)

Posts:975

02/16/2009 8:53 AM
Posted By SheliaH on 02/16/2009 8:32 AM, I would think we'd ask the tenant to send his/her rent payments to us so they'd be applied against the unpaid balance. This way, some money's coming in and there's nothing like an income cutoff to get a delinquent homeowner's attention.... If the association did that without a court order, Sheila, the association would be guilt of fraud and conversion under Indiana statutes.

AnneM2
(North Carolina)

Posts:30

02/16/2009 9:02 AM
RobertR5 - Good points but you didn't mention any outstanding mortgage amount. If the HOA forclosed, wouldn't they then assume any mortgage debt?

RogerB
(Colorado)

Posts:4686

02/16/2009 10:02 AM
Robert, I believe your HOA would want to buy a property unless it was an excellent investment and a last resort. Why not do everything possible to get the mortgage company to initiate foreclosure? And if they don't, the HOA could try to sell their lien and the buyer of the lien could then initiate foreclosure. In Colorado there are HOA attorneys which facilitate selling of an HOA's lien.

RogerB
(Colorado)

Posts:4686

02/16/2009 10:03 AM
correction- I CANNOT believe ....

JanK1
(Arizona)

Posts:6

02/16/2009 8:57 PM
Hi Robert: Our association had a similar situation, and I wondered if our HOA pressing it's own foreclosure would have brought the lender to the table quicker. In this case, yes I think the BANK would have reacted quicker. The reason being: they were capitalized well over what the property will sell for today. The problem with this home, is that is "non-liveable" (torn down to block walls, no dry-wall, and the Seller claimed to have left the home for "mold." In our case, I think the HOA would have forced the Bank to the table at least a year earlier; not that they want to be in the real estate or foreclosure business, but the bank would have stepped in to secure their very large senior mortgage. This would have put the property BACK on the market at least a year ahead of the continuing decline. Today we are going to probably realize at least another 10-15% decline when the property resales. If we had prompted an earlier sale with the BANK we would also be able to negotiate with the new owner for dues going forward (at an earlier date), and also other late fees, transfer fees, etc. So I say that every situation, is different, and you have to look at all the details. I realize that an HOA truly doesn't want to be in the real estate or disclosure business, but that it may protect the homeowners values to push the Bank to step in at an earlier date. One thing we did find out is that the lien (late HOA dues) should be separated from late fees and legal fees in the filings. One should be a lien and the other a personal judgement. Also probably as the lien grows over time, it should be updated to the current amount due the HOA. JK

RobertR1
(South Carolina)

Posts:5164

02/16/2009 9:44 PM
Very interesting JK, I agree with most, the Homeowners of any association (with rare exception) should not be in the real estate business. I was really relieved to see Roger correct his post (with a "cannot"). I would offer one more reason to stay away from association ownership and I may be biased. It is my considered opinion this business of running and managing an association is not something, we, as a collective restrictive means of government is something we do particularly well. Seems to me we have a lot of problems with just about all facets of running a place smoothly and efficiently. Throw in a management company or a manager that does their job well sometimes but certainly not well all the time, and then the association takes on the job of supplying all the administrative expenses of just the day to day normal tasks that will be demanded, and you are talking additional expense. JK: Explain some more about the differences between late fees and legal fees in the filings. Could a personal judgment be used by an association as stand alone, without late fees as such, and effect the action of placing the HOA a priority position at foreclosure. For Robert: Good post and fair warning. This is also another reason I do like like a HOA to be connected to a Real Estate office and especially through a M/C.

PeterB1
(Florida)

Posts:254

02/17/2009 4:28 AM
Perhaps I have missed the point of this thread. I want to believe that the HOA is interested in recouping unpaid dues - not in the posesssion of real estate! We currently have 2 properties that are in foreclosure - both more than 6 months. Both owe significant dues (12-26 months worth). We don't see those dues coming to us anytime soon. We are beginning a different process in the attempt to capture our dues, fees, and attorney fees. Next week we will begin a 'summary judgment' process to attempt to get our money from whatever assets the individuals may have (bank accounts, vehicles, etc). We have not done this before, but we need the money. peter

RobertR1
(South Carolina)

Posts:5164

02/17/2009 6:09 AM
Peter, The original intent of the post sometimes gets difussed as time marches on. Your post is pertinemt and important and it sounds like you all are doing the best you can, and doing it well. I would ask that you elaborate a little or a lot about the procedural steps you take to get you to where you are at now. As you can see, one size doesn't fit all when associations are concerned and posters have specifics that they seek answers about. If folks like you would be so kind as to play the experts for a couple of posts, we could maybe help some more people. I goes without saying, as much as we dream about things getting better economically, it is going to be slow and painful. Sharing is a good way to help others whether that be with material items or sharing knowledge. Thank you.

BryanG1
(Florida)

Posts:43

02/17/2009 6:50 PM
Unfortunately in the state of Florida, HOA's no longer have the right to foreclose on a property.

RobertR1
(South Carolina)

Posts:5164

02/17/2009 8:52 PM
ByranG, What specific post does this message reference? Thanks.

EllenS1
(Florida)

Posts:1148

02/18/2009 8:09 AM
Bryan, Can you cite the statute that covers this? It's the first I've heard of it.

SheliaH
(Indiana)

Posts:373

02/18/2009 8:28 AM
GeorgewilliamsW - yes, I'm aware of that. Since I've been on the board, we've had one or two cases where we asked the court to garnish the owner's rental fees to apply against the unpaid balance. However, in this state, it appears the sucess of this happening depends on whether or not the tenant signs the paperwork from the court. If he or she doesn't sign, we have to find another way to grab the money. Hm, maybe that should part of a law that could help tenants who get caught up in the crossfire of a foreclosure - require the mortgage company to go to court and ask the tenant pay it instead of the homeowner (based upon the current lease) - this way, some money's coming in and the tenant doesn't have to move out at a moment's notice. Of course being a HOA board member, I'd also like to see some language that ensures assessments are paid - a point I made recently in a letter to the state legislators as they mull over what to do about Indiana's foreclosures.

BryanG1
(Florida)

Posts:43

02/18/2009 12:22 PM
I was thinking of fines when I replied... HOA's can't foreclose on a property based on non-payment of fines. They can, however, foreclose for non-payment of dues. My bad...

EllenS1
(Florida)

Posts:1148

02/18/2009 2:04 PM
Bryan, Thanks for clarifying that. I was certain a property (since it is homestead) could not be foreclosed for anything OTHER than non-payment of assessments. We have a judgment against a property owner for repairing her property, plus legal fees in excess of $20,000 and cannot foreclose on that since it is her homestead. What a waste of attorney fees...we now have to see if there is anything we can take, bank accounts, etc...it doesn't look good. This may sound cruel but it appears, since this is an elderly woman, we will have to wait for her estate to pay us. She was given all sorts of opportunities to repair her property which would have cost about $6,000 and she is as wise as a fox. The association even offered to pay for the repairs and accept monthly payments. After two years of lies from her, mediation, etc we went to an attorney when we could have just gone to the City who would have fined her $100 per day after being notified she needed to repair her property. My advice...when faced with this sort of thing do not run to an attorney but first call code enforcement and try everything before incuring huge legal fees. This attorney knew this was homestead property but went ahead anyway to rack up big legal fees to get a meangingless judgment. I feel better now that I have vented.

KirkW1
(Texas)

Posts:1665

02/18/2009 6:57 PM
To be sure you need to look into any advice given you and keep in mind that the laws applying to you are not the same as to others on this board. Personally, I am not above looking up the person's lien to see how much was borrowed how long ago. If the only lien were quite small in reference to the property value, then perhaps. But most of our places have a large loan value in comparison to the property value.

EllenS1
(Florida)

Posts:1148

02/19/2009 5:41 PM
Kirk, I am totally confused by your post.

KirkW1
(Texas)

Posts:1665

02/22/2009 12:19 PM
Ellen, My intent is to point out that the laws concerning what an HOA can and can't do vary widely. To be more specific just because an HOA in one locality managed to rent out a unit between their foreclosure and the bank's doesn't mean it will work for yours if you are in a different state. But also one should keep in mind that management companies may not always give the advice that is best for the HOA. The reality is that a plan to foreclose and then rent out a unit could pose a nice financial gain for the management company while leaving the HOA with all the risk. At least in my situation the management company would stand to make money every step of the way.

EllenS1
(Florida)

Posts:1148

02/23/2009 4:17 PM
Kirk, I am definitely with you re management companies. Some are great but unfortunately there are others to be aware of if for nothing more than their lack of education. Just because they obtained a license doesn't mean they know what they are doing.

RickW
(Illinois)

Posts:160

03/01/2009 12:18 PM
We currently have 3 units out of 56 in foreclosure. One has for been going on for over 2 years. He was not paying his mortgage or his assessments well before the housing market and the economy tanked. I don't have proof, but would bet that he can afford to pay. He has a good lawyer and always seems to get the judge to agree to some reason for extending this out. He owes over $5000 to the association alone and that is after he paid $3000 a year ago when we forced eviction. He hasn't paid a thing since. We tried for a second eviction but the mortgage company got involved and the judge would not issue an eviction. We now are trying to garnish his wages for past assessments. It's just one way of attempting to collect. Another unit owes over $5000, has not paid in assessments in over a year. The owner moved out, has tried to sell, but has not been able to do so. This unit is also in foreclosure and we have an eviction/order of possession set to take effect this week. We are hoping either to force the mortgage company into action or rent the unit out in order to collect past assessments. I agree that as an association, we should not be in the real estate business, however, the unit is in good shape and we need to begin doing something to get the money due to the association. Also, in this instance, we are not forcing someone out of their home, they have already moved out. The third unit in foreclosure is more recent. They are trying for a short sale and a sheriff's foreclosure sale is scheduled for May. Here, we are kind of sitting back, waiting to see what transpires. This instance seems most like a owner who got caught in the breakdown of our economy and we, as an association would rather work with them than evict them. There are a few legal ways of handling these types of situations. All of them require time and attorney fees. While we can complain, the best thing for all of us to due as board members is to stay on top of delinquincies as best we can and begin to look at ways of decreasing our costs. I don't see things turning around for quite some time.

KirkW1
(Texas)

Posts:1665

03/01/2009 1:37 PM
...Another unit owes over $5000, has not paid in assessments in over a year. The owner moved out, has tried to sell, but has not been able to do so. This unit is also in foreclosure and we have an eviction/order of possession set to take effect this week. We are hoping either to force the mortgage company into action or rent the unit out in order to collect past assessments. I agree that as an association, we should not be in the real estate business, however, the unit is in good shape and we need to begin doing something to get the money due to the association. Also, in this instance, we are not forcing someone out of their home, they have already moved out. ... Rick, I would be surprised if you recover what you spend on the action let alone the back dues. In addition, you should consider the impact your actions will have on an innocent renter should you get the foreclosure. You really have no idea how long it will take the bank to take the property once you possess it. Thus the renter may be in the house only a week or two. Then again, it could take several months. At any rate, unless you tell the renter up front what is going on you have done them wrong. If you do tell them up front it will reduce what you can get for rent. By the way, you don't know what the current owner will do when they go to move out. It is pretty common for them to trash the place. You could end up fixing things up for the bank.

RickW
(Illinois)

Posts:160

03/01/2009 2:01 PM
Posted By KirkW1 on 03/01/2009 1:37 PM ...Another unit owes over $5000, has not paid in assessments in over a year. The owner moved out, has tried to sell, but has not been able to do so. This unit is also in foreclosure and we have an eviction/order of possession set to take effect this week. We are hoping either to force the mortgage company into action or rent the unit out in order to collect past assessments. I agree that as an association, we should not be in the real estate business, however, the unit is in good shape and we need to begin doing something to get the money due to the association. Also, in this instance, we are not forcing someone out of their home, they have already moved out. ... Rick, I would be surprised if you recover what you spend on the action let alone the back dues. In addition, you should consider the impact your actions will have on an innocent renter should you get the foreclosure. You really have no idea how long it will take the bank to take the property once you possess it. Thus the renter may be in the house only a week or two. Then again, it could take several months. At any rate, unless you tell the renter up front what is going on you have done them wrong. If you do tell them up front it will reduce what you can get for rent. By the way, you don't know what the current owner will do when they go to move out. It is pretty common for them to trash the place. You could end up fixing things up for the bank. Hi Kirk, We've looked into this situation with our attorneys. The legal fees we have incurred are charged back to the owner, thus, they become collecitble from rent just like past assessments. We might never collect but we need to try something. The attorneys have a lease that we will use for a renter and it would have a 30 day notice to terminate the lease. We definitely will explain this situation to any potential renter. Granted, it will limit who might be interested in renting the unit. We are trying to figure out a way of finding a couple or young family who have lost their own house and need a place to rent. We then would offer it at a cost less than normal for the area. Even better, we hope the mortgage company sees what we are doing and will make some movement. The owners have longed moved out, they have been in foreclosure for a year, so I doubt they'll be back to trash the place. They've not been around in 18 months.

RickW
(Illinois)

Posts:160

08/09/2009 7:35 PM
I thought I'd follow-up on where we stand. We have in fact taken possession of a unit in our complex and have successfully rented the unit. We incurred some costs we didn't anticipate such as bringing the water bill current, replacing sump pump, repairing furnace, etc. All of these charges have been added to the amount the association can re-coup by rneting out the unit. We've had the unit rented for 3 months now. We purposely charge a low rent due to the fact that we have a 30 day temination clause in the lease in case the mortgage company steps in to take over the unit. We've not heard from the owner, bank, or mortgage company in any way. We haven't collected enough to cover all of the back owed assessments, but we are working in that direction.

GloriaM
(North Carolina)

Posts:829

08/12/2009 3:38 PM
RobertR5 Going back to your original posting; this was bad advise coming from your PM and attorney. All of the issues you itemized for HOA's to think about are correct and the taxes and the mortgage as well. The bank is only going to come behind the HOA and take over the foreclosure and wipe out everything you did; unless you can negotiate with the bank to take over the proceedings that you have already initiated and get paid by the bank. HOA's unfortunately always get the short end of the stick when it comes to bankruptcies or foreclosures. Perhaps we should write Washington DC officials and say we are not going to take it anymore......

RickW
(Illinois)

Posts:160

08/12/2009 7:52 PM
Posted By GloriaM on 08/12/2009 3:38 PM RobertR5 Going back to your original posting; this was bad advise coming from your PM and attorney. All of the issues you itemized for HOA's to think about are correct and the taxes and the mortgage as well. The bank is only going to come behind the HOA and take over the foreclosure and wipe out everything you did; unless you can negotiate with the bank to take over the proceedings that you have already initiated and get paid by the bank. HOA's unfortunately always get the short end of the stick when it comes to bankruptcies or foreclosures. Perhaps we should write Washington DC officials and say we are not going to take it anymore...... Gloria, I don't think you can sat the PM and attorney necessarily gave Robert R5 bad advice. I feel strongly this is an individual decision the board of directors needs to make on a unit by unit basis. As I stated above, we are now heading into our fourth month of renting one of our units. We are beginning to recoup back assesements and get some return on our actions. However, there are several aspects the board of directors need to look at before making such a decision. We knew from past experience, the owner was absent and we knew the mortgage company was moving very slowly to take action. We also knew the unit was only about 8 years old, so it being in bad shape was unlikely. We also did not need to have the local building department make any sort of inspection prior to renting the unit. In Illinois, the present insurance the association has covers us and the renters agreed to our request to take out renters insurance and provide us of proof of such insurance. We did not take ownership, we did file an order of possession and was granted this for purpose of renting the unit to collect owed money. Once, we have recouped our money, we will have to turn the unit back over to owner/mortgage company. Therefore, we are not responsible for property taxes. We were not legally obligated to give any foreclosures regarding the construction or condition of the unit. The renter obtained utilities in their name, so we are not liable for them either. We did incure the cost of settling with the local village for back water bills and we did incur some repair costs. But, we also had some idea going into this that repair costs would be minor in comparison to what was owed in back assessments. Yet another argument for a case by case decision. All in all, I would say our experience has been good, we still have a lot to collect to break even, but we are making headway which we were not doing 3 months ago. I do agree, in general, the HOA's get the short end of the stick with bankruptcies and foreclosures. Kinda like the "we won't pay for preventive medicine" syndrome. By not collecting assessments, HOA's cannot maintain the property which can have an advers effect on property values and hurt everyone in the complex. This is a complex issue and one that will not succumb to blanket answers or actions.

RobertR1
(South Carolina)

Posts:5164

08/13/2009 6:44 AM
Rick, Would you agree to posting a new thread on the subject of: Does the BOD of directors have the authority, responsibility, and capabilities to enter into a landlord/tenant relationship with a non-member of the ssociation. Or words to that effect. It seems to be pretty well established that BOD can charge fees for the use of common property to members. What is questioned at times is does this include charging fees for facilities to folks that are not members. And then we have your situation where the BOD feels they have the authoity to actually take opver a "unit" that is in foreclosure, owned by who knows and develop a income producing business. I think I posted, more power to you. But Gloria's post and your response have raised some doubts in my mind. I am not being critical of what you are doing, I think you had all this cleared with your legal council and your state laws. Do other states have similar legislation that allows this. I amj not sure in SC but it seems unlikely our state would condone this action, they may ignore it, they may tell you, they won't get involved, but in the end the state laws to support this would not be there when push come to shove. That is just my opinion, nothing more. If this was proposed in my condominium, I would out of hand reject it (for what that is worth), first, because our history does not demonstrate that we have had the management and Board involvement and expertise to handle something like this, not to speak of the legality in SC.

MaryA1

Posts:0

08/13/2009 7:44 AM
Rick & Robert, If the assn acquires ownership of a unit/lot and rents it out, that rental income most likely would NOT qualify as exempt function income therefore it would be taxable income. Ref: Title 26, IRS Code, section 1-528-9, (exempt function income) (c) examples of receipts which are not exempt function incomee, (2) amounts received from persons who are not members of the assn. Frankly, I don't know why the assn would want to become a landlord. The assn can foreclose on a property w/o bidding on the sale. All they should be concerned with is recouping the delinquent amounts owed the assn. Owning the property means maintaining it and paying property taxes on it, which alone could run in the high thousands. Also, where I live the city requires a business license for anyone who rents property and the property taxes are double for rentals. Together with the fact that the rental income will be taxed by the IRS (and possibly the state) it may not be a very profitable venture.

RobertR1
(South Carolina)

Posts:5164

08/13/2009 12:16 PM
Mary, From what has been posted I don't see where ownership is established or of any concern. The BOD just took over the "Unit" and are renting it out to gain money to pay arrears. They apparently moved a tenant into the property, establish a rent schedule and collect it, and have done this with legal adice and I suppose court direction or something. It is all new to me that is why I asked that a different thread be started.

MicheleD
(Kentucky)

Posts:4491

08/13/2009 1:39 PM
Just curious, because that seems bizarre to me, but how can they "take over" the unit, and then enter into any legal, binding contract with renters, if they don't actually OWN the unit??

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