My business partner, Lisa, and I have run in to two situations where the homeowner’s association (HOA) would not settle for a lesser negotiated amount. By Florida law, banks and mortgage lenders can’t be held liable for more than 12 months of past-due HOA payments, or 1% of the total mortgage amount, whichever is less. But that’s still a year’s worth of association payments HOAs can pry out of banks on foreclosed homes through a reverse foreclosure.
In one short sale situation, the HOA would have garnered more than 12 months of the 48 months past due. Even the lender tried to explain this to the HOA manager. This HOA had not begun any type of foreclosure process and would not have benefitted from the 1st mortgage foreclosing. Luckily for the association, the title company sent the Florida law information to the manager and we were able to settle the past due HOA dues and close.
In our two latest situations, that is not the case. The HOA will not settle for any less than the amount due in full and have already foreclosed on one condominium and positioned to now foreclose on the other. I asked Vicki Hoover, owner of H&S Title and Escrow to give us an explanation of this process.
Vicki stated that an “HOA Foreclosure is when the homeowners association forecloses on their lien. After the HOA forecloses, the property in essence is owned by them subject to any encumbrances such as the first mortgage.”
Vicki further shares, “This process that the HOA takes to foreclose is the same as any lender would do. They have a lien already filed in the public records and must take action on this lien before one year if it is a Condominium Lien or it will expire. An HOA lien is good for 5 years. A Lis Pen dens would be filed to put all parties involved on notice that a Foreclosure Suit has been started. The processes required for Foreclosure begin and the Final document filed would be a Final Judgment of Foreclosure stating a date this is to be sold. Once completed, the judge will sign off on a Certificate of Title. This process takes approximately up to 6 months or longer depending on how backed up the court system is.”
With regard to the mortgage positions, Vicki continues, “The first mortgage holder will take title when they foreclose on their lien, theoretically. As to the 2nd Mortgage, their position would be determined by the Declaration of Covenants and Restrictions if it was junior to the HOA or not. Most often they are junior to the HOA. If the HOA forecloses properly and includes the 2nd lien holder, serves them notice, etc. then this lien would be wiped out if the Declaration of Covenants and Restrictions reflects the HOA in superior position to a junior lien holder.”
We have seen this happen now a few times, and while it not the norm, it is an option that the HOA has. It is my advice to continue paying your HOA dues. Not only is it beneficial to the other homeowners but also should be done if you are using the common amenities. At times, this can be the deal breaker when you are trying to short sale a property.
If you need to short sale a property, please give us a call at 850-496-2150 or 850-621-4525. Vicki Hoover can be reached at 850-650-6621.
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