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Subject: Foreclosure Process
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GeorgeS21
(Florida)

Posts:2902


07/13/2020 10:57 AM  
Hi All,

One of my HOAs (319 single family) has an owner who is now behind in assessments by about 18 months ~$2500 total, with about 35% of that being attorney fees.

We turned the account over to our attorney and it has been in process for about 9 months, including the usual Florida based requirements for notice and response. Notice of Intent to Lien occurred on Nov 18, 2019, property lien was recorded Jan 13, 2020, and the response period for Notice of Intent to Foreclose (Feb 3, 2020) has run out (we allowed additional time due to C19), so we are preparing to foreclose - Final Demand Letter went out on Jun 17, 2020.

At no point during the process has the owner responded to any of the USPS letters, or registered/certified letters (the owner refused them) - sent by either the management company, or our attorney.

While I insisted and the Board voted unanimously to support actions last year, as “process” in such cases - the terminology we used in the minute is, “collect debts in excess of one year’s assessment using any and all legal means,” our attorney has advised us to address this particular property specifically and to authorize a lawsuit related to the owner’s failure to pay assessments. I think this is a reasonable thing, as it removes any doubt as to whether we have addressed this per law. It obviously provides notice to the Board of what is about to occur, as well. First time this has happened in the neighborhood.

Once we approve this at the Board meeting, and provide draft minutes of the meeting authorizing a lawsuit, my sense is the first thing the should happen is to determine what is owed on the property by the owner - and especially to ensure they are not behind in mortgage payments, then we can compare the value of the property to the amount owed, to determine if we will be paid, once the property is foreclosed.

Does this sound generally correct in process flow?

We don’t want to do this, but have been careful to follow process - and, to allow additional time. The owner refusing notice is of concern ...
TimB4
(Virginia)

Posts:16850


07/13/2020 11:48 AM  
1) Ask the attorney if a law suit is required to foreclose on the lien.

2) Follow the attorney's advice (they will be more knowledgeable with your specifics then we would).


Note: One good thing a court order to repay does is open the availability to collect from other sources then the sale of the property (which is all a lien provides). With a court order, the Association can garnish wages, garnish tax refunds, seize and sell other property (auto, house, possessions, etc.) to satisfy the debt. However, all processes must be followed to the letter of the law. Hence, it's best to work with an attorney.
JohnC46
(South Carolina)

Posts:9678


07/13/2020 12:17 PM  
George

Do not consider a foreclosure without legal advice. part of this will be the lawyer checking on any lien holders (including mortgage(s). You might find the economics are not there meaning you pay for a foreclosure and they owe more than any money gotten in the foreclosure.

I believe it cost upwards of $4K to do a foreclosure. They often sound good, but that is all.
GeorgeS21
(Florida)

Posts:2902


07/13/2020 1:30 PM  
Yes, concur with ...

Our HOA attorney is very careful about these circumstances - we avoided one last year which would have cost more than the value.

I usually support liening and waiting if the circumstances show higher value house being well cared for with owner who is not crashing on mortgage payments.
MelissaP1
(Alabama)

Posts:9446


07/13/2020 3:32 PM  
Understand this is NOTHING more than a STOP THE BLEEDING action. HOA is NOT going to make a dime. It's ONLY being paid back the money it is already owed by dues payments/legal costs. Your HOA does NOT want to bid on this property even though they may be the 1st offered. It is just a bad idea.

Part of the foreclosure process includes running an ad in a PUBLIC resource like a newspaper prior to final foreclosure. It has to be ran atleast 3 times. Considering newspapers rarely print anymore it could be 3 months for this to officially process. This isn't unlike if you want a divorce and can't find your spouse. This PUBLIC notice with no response shows the court that ALL efforts to contact were done. You can't argue out of public notices very well.

There is also the right of redemption. Not familiar with how long that is for Florida. It can be little as 0 to 1 year a person can come back to get the property back. Keep in mind they must pay all the back dues/legal fees and mortgage etc... So really can't sell or do anything with the property up to a year in some cases after a foreclosure.

The process takes about 3 - 6 months. Depending on laws/decisions etc... The person can stop a foreclosure at anytime whenever they pay the debt off to the HOA.

If they are behind in their mortgage payments... Do not go with the foreclosure at all. This is doing the work of the bank. Just keep the lien on the property instead. Unless your state has a "Super Lien" ability it is not worth it.

Former HOA President
JohnC46
(South Carolina)

Posts:9678


07/13/2020 5:10 PM  
While I agree with Mel that foreclosure is rarely, I repeat rarely worth it, there are some rare case that is it worth it.

As an example. I do not have a mortgage on my home. I am well worth foreclosing on as the HOA could make quite a healthy sum money on the deal. But again, a rare case.

A lawyer can easily find all mortgages, liens, bankruptcy info, etc. It might be worth a few hundred dollars for them to research it.

Again, I repeat, foreclosure are rarely worth it for an HOA.
GeorgeS21
(Florida)

Posts:2902


07/13/2020 5:30 PM  
Concur, also.

I will not support foreclosure unless it is to the NET advantage of the Association.
KellyM3
(North Carolina)

Posts:1529


07/13/2020 5:56 PM  
HOA foreclosure is a long play to ultimately restore monthly revenue from the property in question. Unless there is an IRS lien on the property, it's worth a serious exploration into following collections laws and instigating foreclosure. It forces the mortgage holder to make a move since the HOA isn't going to make a house payment. It wants the property flipped to an owner.

However, the HOA will likely "buy" the house for what it's owed and not collect anything. I can't recommend it as I've experienced it but, in the end, someone bought the property (we literally could NOT find the owner or that she was alive) and the revenue flow began again.

What you may find is the owner will pay up.
MelissaP1
(Alabama)

Posts:9446


07/13/2020 7:54 PM  
NO it is not an advantage to an HOA to own someone's home out of foreclosure. Whether or not there is an mortgage or not. The benefit to the HOA is to be able to get rid of a non-paying member and replace them with one that does pay. Everything else is just complicated and not worth the effort.

The end goal of a HOA in foreclosure is ALWAYS to get rid of the non-payer or have them pay up what they owe. Everything else has consequences not worth it.

Even if the house is paid for and no mortgage it does not benefit the HOA. Sorry to burst anyone's bubble. The HOA still has to purchase the home at Auction. Which basically they are paying to fill in a hole left by the owner. So basically if the owner owed 10K in back dues the HOA is paying again another 10 K+ 1 dollar to purchase.

The HOA still can sell the home till the right of redemption period is over. That means a year of home ownership which it can't really rent nor sell the home. It has to maintain and maybe do repairs to the home to make it sellable or rentable. Meaning you have now more money invested in the property.

Let's NOT forget the HOA has to pay the HOA dues on the property it owns. It can't just skip that nor insurance. So now is your HOA budget prepared for home insurance, dues, repairs, maintenance, purchase price, utilities, and any other home ownership costs for a year?

Former HOA President
KellyM3
(North Carolina)

Posts:1529


07/16/2020 8:59 PM  
The HOA will not pay cash at auction to buy its own debt. It will receive the property for debt-owed unless another bidder steps forward to cover the cost, therefore "clearing" the lien.

The HOA would not pay itself HOA dues if it took possession.

The HOA subsequently wouldn't foreclose on itself for not paying itself.

What would happen is the HOA wouldn't pay the mortgage and the bank would take action. If there were no other liens, the HOA would list and sell the house.

It is very true that it's not an advantage to undergo this process. It's a last resort when everything else has failed to spur payment AND should come after all facts are known about why a property isn't performing since the human element is involved.

Follow the process and maintain respect for your HOA operations. Most dues payers duly pay every month and deserve protection if properties aren't supporting the community as dictated and agreed.
MelissaP1
(Alabama)

Posts:9446


07/17/2020 5:30 AM  
Have you done a foreclosure? I have. The first bid is offered to the HOA for the debt owed plus $1. Hopefully, there are other people there available to outbid.

If the HOA bought it, then why would they NOT owe HOA dues? ALL owners MUST pay dues. A HOA is an owner. So it must pay the dues. Most likely never going to lien or foreclose on itself.

If no one buys it at auction then it will become another foreclosure at the Tax level. This is how all those TV ads about flipping houses make their money. They buy them after the Tax Lien is foreclosed on. This takes about another year of it sitting empty.

The HOA owns it still has to obey the laws. Which means there is a right of redemption in some states up to a year. So the HOA can't just sell it in that year. Instead they must pay for insurance, dues, and maintenance. Plus sometimes a mortgage payment.

So no a HOA is in no way making a profit off a foreclosure. Even if they did sell for a profit, they have to pay taxes on that money.

Former HOA President
KellyM3
(North Carolina)

Posts:1529


07/17/2020 7:15 AM  
You are foreclosing the HOA lien, not a tax lien. The HOA will obtain property for the debt the HOA is owed. If the taxes aren't paid, then absolutely the county will sell the property for the taxes owed. Having superior liens get enforced on top of the HOA foreclosure is risk to the HOA so the HOA can be foreclosed after it concludes its foreclosure. Buying at tax lien auctions is very risky for courthouse buyers/investors.

Yes, I've unfortunately had to experience the HOA foreclosure process.

Your HOA contains the full privilege of writing the "$10,000 + $1" check to itself as well as write an HOA check to itself. Otherwise, it does need to be an accounting adjustment to reflect the stalled/loss of income to the operating cash flow. Our HOA didn't write checks to itself in this case and subsequently would not foreclose on itself.

Best case scenario is that IF the HOA must foreclose, then the bank immediately exercises the acceleration clause in the mortgage or otherwise demands monthly payments from the HOA. The HOA should be willing to then lose the house to the bank. It's drawn out and should be avoid if resolution is possible.

Your state may vary. Your HOA may also wish to write itself checks. Whatever works for your community.

HOAs are supported by the owners of the community and consists of the owners. The HOA is not a constituent of itself in any practical sense. It's an owner of last resort.

From an HOA operations perspective, it's always "worth the effort" to protect core cash flow on behalf of the owners. From an HOA board volunteer perspective, being "worth the effort" is subject personal opinion that must be weighed. However, you should relinquish your duty if you're not willing to perform the task after every conceivable solution or hardship waiver is considered.
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