How do you save money and heartache? Pay your HOA dues.
As a San Jose Short Sale Agent, I can tell you that one of the most difficult situations to deal with in a distress scenario involves an HOA which has filed a lien on the property for non-payment of dues. What is even worse is an HOA that hired an attorney to sue the homeowner for non-payment of dues, slapped on a bunch of indiscriminate fees and penalties and demonstrated absolutely no willingness to compromise to reach a mutually agreeable settlement because they have a default judgment in their hands.
Asking for the unpaid dues is obviously expected, however, the attorneys piled on additional fees and surcharges in the complaint, among them items like: interest of 12% per annum, late charge of 10% per month, lien fee of $1300, collection cost of $500, litigation guarantee fee of $600, plus additional collection and attorney fees. The total of lien amount was roughly $16,000 but the non-dues fees came out to be approximately 50% of the total amount.
When dealing with lenders, whether it is the first or second, everyone is operating on the principal that compromise is necessary to achieve the ultimate goal of completing a short sale to avoid a foreclosure. In this case, that goal was punctuated by a Trustee Sale scheduled only weeks away. Whether the second lien holder tries to negotiate for 10% or 50%, there is the underlying understanding that everyone has to give a little to make the deal happen in the end. This fundamental concept, by which everyone operates in the distressed market, gets tossed out the window when an attorney with a default judgment is on the other end of the phone. WE DO NOT NEGOTIATE becomes the mantra. And because of the default judgment, there is no incentive to take less, even though the other parties are taking substantially less. They knew she had a steady job, so even if the property foreclosed, they would pursue her after the foreclosure.
Negotiating with these attorneys has been the worst experience to date for me. It would be a bit different but for the default judgment in their hands; at least there would be some sort of room to maneuver. After literally having begged for some relief, we managed to reach a settlement for 90% of the value of the lien. The relentless threat of pursuing her after the foreclosure, in conjunction with the seller not wanting to have to file for bankruptcy to protect herself from the attorneys and the impending foreclosure, led to the signing of a promissory note plus some cash. At least it was finally over and they agreed to release the claim and let the short sale proceed.
What did the seller and I both learn from this experience? Pay the HOA dues at all cost. Had she paid it, we would not have dealt with the 50% ancillary fees and costs that were padded on the complaint. She certainly would have saved a lot more money and we both certainly would have endured less emotional distress.
Pay your Homeowner Association Due, even if you don’t pay your mortgage
This is one thing I advise all of my clients who have HOA (Home Owner Association) payments: please do not fall behind on HOA dues. HOAs are playing hardball and much harder to negotiate with than lenders.
As a matter of fact, I have one right now, where we are dealing with the attorneys that the HOA hired due to back dues not being paid. It is a sticky mess with threats and the attorneys demanding fees and refusing to settle for less, etc…
Richard provides an excellent breakdown and it is actually happening to one of my clients as he described in his post.
Steve
My law practice today involves dealing with lots of borrowers (for foreclosure solutions) and lenders (for foreclosure prosecution). One of the most prevalent financial situations with a borrower whose property is subject to a condominium, homeowner or property owner association is that they stop paying the association’s assessments. Although this usually amounts to the smallest lien on the property, it often is the hardest part of a solution for a homeowner.
In most states, and particularly in Florida, the association obligation is like real estate taxes, meaning it can result as a lien upon the property and that lien can be foreclosed, just like a mortgage, forcing the sale of the property. But the association obligation is in one respect even more powerful than real estate taxes, which are not a “personal” financial obligation of the property owner (meaning the taxing authority cannot sue you personally for the unpaid financial obligation). Association obligations are both a lien on the property AND a personal financial obligation. This makes it the same as a recourse promissory note secured by a mortgage.
THE ADDED COST OF ATTORNEY FEES AND COURT COSTS
Collection of unpaid association obligations can be expensive for a homeowner. I can point to several examples where the amount of the “dispute” regarding the association fees was a few thousand dollars, and the costs and attorney fees regarding the collection of the few thousand dollars amounted to 4 or 5 times the disputed amount. Imagine, you did not pay (rightly or wrongly) $1,000 in association fees and you end up owing $6,000 to the association to save your home from foreclosure. That example is all too much of a reality.
BE A GOOD NEIGHBOR
Consider also that if you want to sell your home in a short sale, you want to have the obligations of the community as up to date as possible, so a buyer is scared away by unknown and expected special assessments. Do you want to be part of the solution (that will ultimately help you and your neighbors) or part of the problem? Usually the amount of the monthly or quarterly assessments is a fraction of the mortgage not being paid.
BARE BONES EXISTENCE
Associations now have the right to refuse common area amenities. This can be resident access to the community, cable, and recreation amenities. The Florida condominium language on point says: If a unit owner is delinquent for more than 90 days in paying a monetary obligation due to the association, the association may suspend the right of a unit owner or a unit’s occupant, licensee, or invitee to use common elements, common facilities, or any other association property until the monetary obligation is paid. The homeowner association statute is similar: If a member is delinquent for more than 90 days in paying a monetary obligation due the association, an association may suspend, until such monetary obligation is paid, the rights of a member or a member’s tenants, guests, or invitees, or both, to use common areas and facilities and may levy reasonable fines of up to $100 per violation, against any member or any tenant, guest, or invitee.
ASSOCIATIONS GRAB RENTAL INCOME
Associations now have the right to collect the rent as if they were the landlord of your unit, if your unit is rented. Or they can refuse to allow you to rent if you are delinquent. See COLLECTION OF DELINQUENT ASSESSMENTS THRU RENT – POWERFUL TOOL FOR FLORIDA ASSOCIATIONS and COMMUNITY ASSOCIATION AS LANDLORD – WHO GETS THE RENT?
LOSE YOUR PROPERTY AND STILL HAVE TO PAY
Let’s say your property goes up for a foreclosure sale and the bank or a third party acquires the property in the court mandated sale. You STILL owe the association for any assessments that were unpaid at the time of the foreclosure sale and you can be sued personally wherever you may be for up to 5 years – and a judgment against you could be good for up to 20 years. And it does not matter that you moved to another state or another country. See CAN YOU RUN AWAY FROM A MONEY JUDGMENT?
BANKRUPTCY IS NOT A SOLUTION
We never advise our client to not pay an association. Even a property owner going through bankruptcy cannot avoid the effect of the association lien – it remains on the property as only the personal obligation up to the time of discharge by the bankruptcy court is uncollectable against the property owner. But the assessment lien can still be foreclosed as a lien on the property. And the debtor, if they still reside in the property after the discharge, again become personally liable for the assessments that became due after the bankruptcy discharge.
Brokers, Agents and their clients need to understand the important issues surrounding association assessments. If you are taking a listing, or buying the property, find out in advance the procedures for approval of a buyer and the status of the property owner regarding the obligations.
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Copyright 2011 Richard P. Zaretsky, Esq.
Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make. This article is for information purposes and is not specific advice to any one reader.
Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660 RPZ99@Florida-Counsel.com - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW -FORECLOSURE SOLUTIONS - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide! Shortsales@Florida-Counsel.com New Website www.Florida-Counsel.com .
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Bankruptcy cram-down a possiblity again says Congress?
http://www.washingtonpost.com/wp-dyn/content/article/2009/09/09/AR2009090901697.html
Bank of America and Wells Fargo, perhaps the largest players in the mortgage market in California are way behind other banks in approving loan modifications. It seems fairly obvious that with the current voluntary status of the Making Home Affordable Program, these banks have no incentive to step up to the challenge, rather, they would like to throw up excuses as to why they cannot live up to their commitment to the government and to the tax payers, when their peers are able to do so without as much difficulty. Something drastic has to happen to make these banks adhere to their commitments to the tax payers for receiving aid in their times of need last year.
The prospect of Bankruptcy Judges being able to freely modify loans at their discretion will certainly light fires under these banks’ feet to get them to move more quickly. While these bank executives have time to contemplate their financial moves, homeowners lives are being affected on a daily basis. Real people and their children’s lives are forever being altered; these are not just loan numbers.
We do not live in a perfect world, simply hoping that these profit driven institutions will do the right thing is wishful thinking at best.
