There are many little details that you need to pay attention to in a Short Sale transaction. That's why working with an agent that has experience in this area is very important.
Most condominiums and townhomes will be bound to an HOA, similar to which many single-family homes are. One difference, however, is that HOA for condos/townhomes charge monthly dues rather than annual dues which are typical for most single-family home subdivisions. These monthly dues often cover the maintenance and upkeep of the common areas like pools, fitness centers & clubhouses, weekly lawn care & landscaping, newsletters, master insurance policies for the complex facilities, sometimes even some of the individual unit utilities such as water & sewage.
These monthlies can be a point of concern when it comes to short sales. The monthly HOA payments are not made by the lender on behalf of the seller like one's homeowner's insurance, but are paid directly to the HOA by the seller.
If the condo/townhome seller is being permitted by their lender to short sale their property, the seller must demonstrate a hardship and be in financial distress. Being in financial distress, the seller often will already be in default on their payments to the lender, and as is often the case, in default in making the HOA monthly payments as well. This often results in an HOA filing a lien on the property for the amount in arrears.
This lien must be satisfied before the short sale transaction can close. A good Short Sale Agent will look for this situation at the beginning, and not wait until they reach the closing table. Who is going to pay this amount? ... Well, the seller has no cash to do so, they're in financial distress and short selling their property, remember? So? ... yes, that's right, you Mr./Mrs. Buyer. You will probably have to help pay, or "contribute", some cash to cover some or the entire outstanding amount due to the HOA.
One important thing to keep in mind, even a good Buyer's Agent or Short Sale Agent may not be able to find out how much is owed. The HOA, if contacted, probably will not tell them due to confidentiality. But your agent should be on their toes and should be looking for this.
Important Questions to Ask Before Making the Offer (Short Sale or Arms-Length):
- Is there a Homeowners' Association?
- Are the HOA dues current or delinquent?
- What is the delinquent amount?