The Unintended Consequences Of The HOA in Short Sales!

By
Real Estate Agent with International Properties and Investments LLC

The Unintended Consequences Of The HOA in Short Sales!

We have a notice of expectations that all our Florida short sale sellers must sign when we agree to negotiate a short sale for them and list their property.

One of the biggest deal busters there is- Past Due HOA fees.

We explain the consequences of a Florida short sale homeowner not paying their HOA fees; not keeping them current. If you choose not to pay your mortgage payment that is one thing but always pay your HOA fees. Keep your HOA dues current whether you are living in your property or not.

The HOA's are foreclosing on homeowners at an alarming rate right now in Florida. There are legislative changes that have been made and more being proposed in order to protect the Homeowner Association's financial well-being for the good of all the members of the HOAs.

Many homeowners think that they will just pay the past due amounts at closing or that their lender will pay them all for them. The short sale lenders for Florida short sales are NOT paying ALL of the amounts owed at closing for past due  HOA fees.  Each lender has their own rules about that and a lot depends on what they require to be their net proceeds.

The biggest problem we see is that homeowners are only adding up the amount of their dues and then multiplying that number over the number of months they are delinquent.


But that is just a part of the outstanding HOA fees. Once the homeowner goes delinquent, ( stop paying their HOA fees) a lot of other fees start to be incurred. They will then have late fees, attorney fees, foreclosure fees and other legal fees.  The HOA fees along with all the other penalties incurred can easily end up being doubled.

We have not had a case yet where one of our short sale listings did not close over the HOA fees but it has come close. Because even though we advise our clients to keep their HOA fees current and what could happen if they don't- there are some homeowners who stop paying anyways. We have been in some close calls. Most of the time the cash buyers we have will come in and pay the difference but that is not a given so never depend on that.

Even worse than the entire short sale being thwarted by an HOA association who refuses to make a deal; they are no longer being amiable to negotiating down their fees and the HOA can and most of the time will file foreclosure against the homeowner. This can almost double or triple what the homeowner owes at the closing!

HOA's are foreclosing on properties and they are renting the units out. There is legislative language in the house that is being proposed that if the property is vacant that the HOAs will be able to rent out the units even if the property is not foreclosed on in order to protect the community interest.

Why are they being so tough? Well, it has to do with the viability and stability of their community. Those dues go to take care of the common grounds and many other things. If they don't have the money to take care of those things, the community gets run down. That is not fair to the rest of the homeowners that live there. They pay their fees and are no longer getting a benefit. Their values go down even more. Then on top of that, if too many people stop paying their HOA fees- the state has to come in and take over the HOA in a state receivership. That is not a good thing. Then, new buyers can not get loans to buy places in that community unless they put down at least 20% and sometimes 30% .

The other homeowners in the community don't feel that they need to be paying for homeowners who choose NOT to pay their HOA fees. They are putting pressure on their boards to not make deals because it is not fair for one person to have to pay the same as another.


My next post is about the extortion type practices of some attorneys who represent these HOA's. Make sure to read it because I will show you how high some of these fees can get when a homeowner does not pay their HOA fees over an extended period of time.

Avoid Foreclosure! Call Nestor and Katerina Gasset for Short Sale Information Today- 561-753-0135

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Copyright © 2010 By Katerina Gasset, All Rights Reserved.*The Unintended Consequences Of The HOA in Short Sales! * 


 

 

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Re-Bloggged 5 times:

Re-Blogged By Re-Blogged At
  1. Dick and Dixie Sells 01/24/2010 10:12 AM
  2. Judy Chapman 01/25/2010 09:28 AM
  3. Julie Booth 01/25/2010 10:26 AM
  4. Gene Riemenschneider 01/25/2010 04:56 PM
  5. Jason Kardos 02/09/2010 04:50 PM
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Topic:
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Groups:
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Sharing Information of Short Sales
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Tags:
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Comments 52 New Comment

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Ambassador
1,850,511
Nestor & Katerina Gasset
Realtors, Wellington Florida Homes For Sale
International Properties and Investments LLC

Sally- On this deal- there is a 3 way split between agents- not enough money in the deal to pay the $5000 in legal fees. The only choices are- the seller - who we told to pay the fees- pays the fees or it goes to foreclosure. Next post will tell you what happened:) 

January 25, 2010 12:07 PM
Rainmaker
808,064
Lyn Sims
Schaumburg Homes
RE/MAX Suburban - Schaumburg IL Real Estate - Northwest Suburbs of Chicago

Totally agree with your use of the word 'extortion' by the Assn legal teams. They are jacking up the legal fees and including them in situations where they already know the house is under contract thus costing the owners more!

In IL we have a newer law that allows the assn to recover up to 6 months worth of dues plus the attorney's fees - which have not been negotiated! It's highway robbery and the new buyer has to foot the bill!  Think of this in a minimum down FHA situation where the buyer needs 3.5% as a down payment but is responsible for more than than from the assn!  So, (sometimes) the lender of the REO figures that out quick & pays it but that can't be counted on.

Alot of agents don't know of these new procedures and are living with their heads under a bucket I think.

January 25, 2010 12:08 PM
Rainer
83,111
Catherine Condon
Pepperell MA Homes - Middlesex County - Hillsborough County
Short Sales - Integrity Residential Brokerage

Thank you for the information.  I haven't handled a short sale in a complex but will definitely make note of this and follow your suggestions.

January 25, 2010 12:10 PM
Anonymous #36
Anonymous
I've fallen....

HOA's have proven to be a gaggle of heartless voltures comprised of 'old' people discovering a way to counter their fading relevance in today's world. They have simply copied a page for the local too big to fail bank and are having fun with it. They need to be stopped!

January 25, 2010 12:41 PM
Anonymous #37
Anonymous
I've fallen....

HOA's have proven to be a gaggle of heartless vultures comprised of 'old' people discovering a way to counter their fading relevance in today's world. They have simply copied a page for the local too big to fail bank and are having fun with it. They need to be stopped!

January 25, 2010 12:42 PM
Rainer
34,378
Greg Renfrow
Marx-Bensdorf, REALTORS

Thanks for the heads up - great information. I have not encontered this yet, but I see this could present a problem for closing. I can see that a seller could just 'assume' all the late HOA fees would be paid by the lender at closing.

January 25, 2010 01:19 PM
Ambassador
1,850,511
Nestor & Katerina Gasset
Realtors, Wellington Florida Homes For Sale
International Properties and Investments LLC

Catherine- Here in Florida all gated communities have HOA as do all condos and townhouses. There are VERY FEW NON HOA communities left here in South Florida. Katerina 

January 25, 2010 01:55 PM
Ambassador
1,850,511
Nestor & Katerina Gasset
Realtors, Wellington Florida Homes For Sale
International Properties and Investments LLC

OK- AR must have put this post in the newsletter- Thanks a bunch- seeing new people on my blog is really cool! Welcome! I hope you subscribe so you can keep up with all the short sales and Social media marketing that is going on! Katerina 

January 25, 2010 02:29 PM
Ambassador
1,850,511
Nestor & Katerina Gasset
Realtors, Wellington Florida Homes For Sale
International Properties and Investments LLC

Greg- If the listing agent is doing their job- there should be NO assumptions on the part of the homeowner! We even make them sign a statement that we require as part of our listing agreement that they keep current on their dues and that there is a limit that the bank will allow. 

January 25, 2010 02:30 PM
Rainmaker
127,857
Karen Rittenhouse
Real Estate Investor
www.JKKPropertyInvestors.com

Wow, grat information.  The HOA's are more powerful than I was aware.  I hadn't heard that they could rent out vacancies for the benefit of the community.  It makes sense but some of these HOA's are not actually led by competent people!  (another discussion) 

I am going to look up the laws here in North Carolina right now!

Thanks.

January 25, 2010 02:46 PM
Rainer
23,841
Jeffrey Burnham
The Wizard
Encore Realty

A timely article for me.... I JUST HAD ONE today fall out of escrow since the Negotiator at ASC REFUSES to pay the $8k the homeowner now owes to the HOA. The wanted the BUYER to pay it to make the deal happen!! Personally, I WISH the HOA would foreclose and bump them out of 1st position!

January 25, 2010 03:25 PM
Ambassador
1,850,511
Nestor & Katerina Gasset
Realtors, Wellington Florida Homes For Sale
International Properties and Investments LLC

Jeffrey- Here in Florida the HOAs can also go and buy the note for a huge discount. Then the first gives the HOA the title and the HOA then owns the property and can rent it out. They are trying now to get laws passed that they can rent the property out as soon as they think it is vacant. 

I understand your frustration that is why we don't take listings where the HOA is behind. We have had only 3 sellers back out on their deal to us about keeping their HOAs current. All three were huge sums like yours. But it is NOT ASC that is refusing, they are only going by the investor on the note's guidelines and how they interpret those if they are not spelled out. The next thing is why is the homeowner not paying in the first place. We tell them if they stop making payments to their lender, keep HOA current! Katerina

January 25, 2010 05:14 PM
Rainmaker
997,506
Karen Fiddler, Broker/Realtor
Laguna Beach & Lake Arrowhead, CA (949)510-2395
HOM Sotheby's Intl Realty, 949-510-2395

Here too....I am now requiring buyers to agree to pay past due HOA and estimating the amount for them before accepting or making offers. We need to address it so we don't have any surprises.

January 25, 2010 07:28 PM
Rainmaker
313,326
Mike Bjork
American Pacific Mortgage

Hi,

Thanks for the post.  I have heard that it is advisable for the Seller, of a Short Sale, to keep their HOA dues current, as most of the Lender won't cover this expense.  One negotiator mentioned to me that this is the one fee that the Lenders won't cover, but they'll take the loss on paying the property taxes, then loan balance and realtor commissions.  I am a bit surprised that a lot of HOAs are exercising the Foreclosure procedure, as it's my understanding they'll need to settle with any other Lien Holders on the property (First Mortgagor, Second Mortgagor and probably the County/City for Property Taxes) by bringing them current.  I would think it may be too expensive for many HOAs to bring those current/settled.  What is your experience with this?

 

Thanks,

Mike

January 26, 2010 12:01 PM
Rainmaker
125,433
Matt Robinson
Pensacola Real Estate (850) 292-4000
ERA Emerald Coast Realty

Great post guys!  I love it when Rainers take the time to provide fresh content, instead of just rehashing stuff we've heard a thousand times.  Keep up the good work, and keep generating those content-rich posts.  We all are better for it!

January 26, 2010 08:10 PM
Rainer
104,628
Brady Pevehouse
Your Orlando Real Estate Professional
Perrone Realty

I currently sit on the board of an HOA with 2200 homes (less than 1 month left in position)

We currently have title through foreclosure / auction process that allows us to rent the property as the owners.

One of the properties already had a tenent in place, who started making payments to the association to try and cover the $8000 deficiency in dues from the property owner. After a 12 month rental the association should be caught up on fees and dues that have accumulated.

The second property recently aquired through the foreclosure / auction process is still occupied by the original homeowners who are in foreclosure through their lender and have failed to pay approx $5000 in fees. This past week the HOA board of directors elected to evict the current owners as they are not taking care of the property, nor paying their assessments as dictated in the documents.
We are left with no choice but to protect the homeowners who are paying and try to run a balanced budget.

Many people fail to realize the downfall of homeowners who fail to pay. Currently our community is $250,000 behind in money owed to us for the purpose of running the business. HOA's are non-profit businesses and must account for repair and replacement cost of ammenities all of which help maintain home / property values. So when our community must halt regular service on signs and lawn care due to lack of funds every homeowner suffers or must make up the difference via special assessments all because homeowners fail to stay current.

this post is true and accurate, please advise all clients that the association can and here in Florida, will stand in the way of a sale if they are not paid properly. Law dictates the maximum fees allowed in a short sale to be 1 years of dues or 1% of the sales price, but if the amount is over that, the association has the right to not permit the sale, or prolong the sale through negotiatons, which we all know can kill a deal for someone who has already been waiting months.

Simple problem solving says: keep the dues current and everyone will be happy.
HOA's have found their work around which is file for judgement or foreclosure before the bank does which is sometimes easy as some homeowners stop paying dues first before they stop paying their mortgage. It all comes down to who has recorded the foreclosure first, either the lender or the HOA.

January 27, 2010 03:24 PM
Rainer
112,835
Beverly Femia
Broker Realtor Stager - Greater Wilmington, NC Are
Coldwell Banker Sea Coast Advantage

I ran into this recently in NC too.  Homeowner had burned bridges and, consequently, the HOA was just not reasonable.  The homeowner was upside down and foreclosure didn't make much sense since it would force the bank to foreclose.  My phrase for this situation is "my minds made up, don't confuse me with the facts."

I understand non-payment is a huge problem for HOAs and their paying members.  There doesn't seem to be any easy solutions for todays' problems.   

January 27, 2010 07:36 PM
Ambassador
1,850,511
Nestor & Katerina Gasset
Realtors, Wellington Florida Homes For Sale
International Properties and Investments LLC

Mike- Read Brady's comment #48. Yes, in Florida the HOAs do foreclose on the properties. The banks are so slow to foreclose especially on condo units. Most banks don't want the inventory. So they procrastinate their foreclosure and then HOA s like the one that Brady is on the board of, come in and foreclose and then rent the properties to try to recoup the big losses. 

January 28, 2010 01:28 AM
Rainmaker
107,496
Dana Devine
Charles Rutenberg Realty

Well how does this work?  buyer owes $200,000 on a condo worth $50,000, BOA is no in a hurry to foreclose, and it is listed for sale....why would a HOA try a forclosure? with these figures the HOA gets nothing....al least if it sells in a short sale the HOA gets something.

Isn't BOA in the first position?

 

February 01, 2010 07:26 AM
Ambassador
1,850,511
Nestor & Katerina Gasset
Realtors, Wellington Florida Homes For Sale
International Properties and Investments LLC

Dana- Apparently not! I am not sure how this is working but they are doing it all over Florida. I am looking into more of the statutes. But if you read comment #48- he explains what the HOA does, he is part of an HOA, his explanation is easy to understand. 

February 01, 2010 09:06 AM
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Nestor & Katerina Gasset

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