Home Owner Associations and Short Sales

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If you have not had to negotiate with a Home Owner Association (HOA) regarding past HOA dues in order to get a short sale closed, well you haven’t lived.  It is, seriously, one of the more frustrating tasks that we have to handle.  It seems that more than half of the HOAs have some hard and fast stance on not accepting anything but a full payoff of the past due amount.  I have had a situation where we were racing to get a short sale approved in time to beat the foreclosure sale.  We got it approved but had to deal with the HOA in order to close.  In that case the HOA would not budge on their $12,000 HOA past due amount…even when we offered them $9,000.  The property went to foreclosure and the HOA lien was wiped out so the HOA ended up with $0.

I have also seen a drastic increase in HOA’s filing foreclosure actions.  I scratched my head at first trying to figure that one out.  North Carolina is not a Super Lien State.  In a Super Lien State the HOA’s lien jumps ahead of the mortgage in a foreclosure so they are always paid in full.  In North Carolina the HOA lien falls in line behind the mortgages/deeds of trust and always gets extinguished in the foreclosure.  So why foreclosure?  As you may have noticed, the banks are not rushing to foreclosure for various reasons.  We are seeing banks taking a year or more to even begin the foreclosure process.  This means that the HOA can take title to the property, rent it and continue ignoring the mortgage(s).  When the bank finally forecloses and title is transferred to bank, the HOA may have pocketed enough rent to catch up on the HOA dues and then some.  This is either smart or fraud.

The bottom line is:  Pay your HOA dues even if you have stopped paying the mortgage.  The bank seems to have wised up and decided that a homeowner living in the property, not paying the mortgage and keeping the lawn mowed and the AC on is better than an empty neglected house.  In that situation the homeowner is enjoying the use of the property so they should at least pay the HOA dues.  By not paying them their fellow neighbors are the ones getting hurt and not the bank.  Additionally, by not paying them you may be precluding a short sale if you don’t have the cash to catch the HOA dues up completely at closing.


Comments (58)

Lucien Vaillancourt
Native Sun Realty, Inc. - Jacksonville, FL
Jacksonville Florida Real Estate

I have to admit that I never considered HOA's an issue with short sales.  Thanks for opening my eyes to this potential problem.

Oct 08, 2011 10:40 AM
Michael Ford
San Diego, CA

as a director on three association boards i'll give the view from  the other side of the desk.

first, i have NO PROBLEM taking a reduced payoff if the deal requires it.  since i know what happens, and how, and when, better than most directors i have a series of questions i ask before i get out my writedown pencil.  once the facts are on  the table we figure out what our tack is.

if the home is rented and the owner is just pocketing rent...TOUGH SHITE...PAY  THE ASSOCIATION.  if the renters want to use the pool  and tennis they can pay  the fee...otherwise we shut off their electonic key.

if the family has fallen on hard times...then i am willing to help.  genuine distress is never a problem  and i've endorsed 20 cents on  the dollar.

if the owner is just doing a strategic default,  has assets, and wants us to bleed with the lenders...NOT ON MY WATCH. my choice is a small calims suit to get a personal judgement.  some owners threaten bankruptcy.  go ahead, cut your own throat.

if the deal gets to our desk at  the last minute...too bad,  the owner better have a reasonable plea or the reality is that  there are too many people looking at a lost payday to let the deal fail.  this is a no lose for an association.

the new rule for associations is to carefully manage owners who  are more than a month behind.  associations are non profit corps with razor thin budgets and little room for losses which can ONLY be made up from the paying members.   an association might be seen as someone needing to play ball to help out but the vast majority of losses are unnecessary as the services have already been delivered...in some cases the association is paying water and trash...which neighbor would you like to thank for that? 

i don't want to sound uncaring but the HOA fees are always known going in...to expect to have your bills paid by others is fine if you are back on your heels but we all know that such is rarely the case.


Oct 08, 2011 10:59 AM
John Van Hogen
Keller Williams Realty Professionals - Hillsboro, OR
Serving Sellers / Buyers / Investors 503-680-9390

Here in Southern California, delinquent HOA dues are creating a growing impediment to the execution of Short Sales. Associations have been more agressive in the past few months on this issue, often turning to law firms for collection. This only complicates the negotiations. Many of these local law firms will not budge, demanding full payment, including their fees, which can double or even triple the costs.  

I believe short sales demand all parties remain focused and flexible, with the goal of installing a new owner, who will start paying dues, property taxes, and a mortgage, all the while contributing to the local economy. Realtors all around me are doing their part, working hard through complicated, time-consuming, often stressful short sale transactions. I think it's time all other involved parties display the same effort to help move the market forward. Is that too much to ask?    

Oct 08, 2011 11:35 AM
Nancy Makowsky
Coldwell Banker - Laguna Beach, CA

They are a pain but I have found not to take the first no we won't negotiate on any of our fees.  I was turned down on the first try and then kept sending them emails asking for at least a partial forgiveness on the late fees.  I got $500 off of a $2000 lien.  

Oct 08, 2011 02:54 PM
Kent Dills
Broker, Dills Real Estate - Bellingham, WA
Real Estate 817-495-8028, Bellingham, Washington

Steve, good post and coverage of the HOA issues facing short selling agents/home owners.

Here in Texas, HOAs are a super lien and they don't get wiped at foreclosure.  In fact, HOAs are often the foreclosing party.

I have had multiple successes getting HOAs to accept discounted payoffs when the scenario called for it.  Not all the time, but often!  ;-)

Oct 08, 2011 03:08 PM
Jirius Isaac
Isaac Real Estate &TriStar Mortgage - Kenmore, WA
Real Estate & loans in Kenmore, WA

I have never encountered this problem with HOA dues in a short sale so thank you so much for sharing your experience with us.  I even think I will re blog this.

Oct 08, 2011 04:53 PM
Paddy Deighan MBA JD PhD
federalfinanciallawgroup.com - Vail, CO
Paddy Deighan J.D. Ph.D

One twisted reason that HOA's defiantly insist upon receiving full value is that even in the event of foreclosure, their lien may be wiped out but there is personal exposure on the HOA indebtedness and they can frequently get something - even if only a judgment that they hope to collect something on later. 

Oct 08, 2011 05:17 PM
Sam Kader MLO 130505 MB 78982
Pacific Coast Financial LLC Lic# MB78982 - Seattle, WA
Real Estate NMLS 91980 Mortgage Broker Lic MB78982

Conventional lenders will not lend to any condo projects with more than 15% in HOA delinquincy dues.  I recommend that condo questionnare be completed first.

Oct 08, 2011 05:26 PM
Bob Miller
Keller Williams Cornerstone Realty - Ocala, FL
The Ocala Dream Team

Steve, good info on short sales and homeowner associations.  No questions they had added a dimension of complexity lately.

Oct 09, 2011 02:07 AM
Dorte Engel
RE/MAX Leading Edge - Bowie, MD
ABC - Annapolis, Bowie, Crofton & rest of Maryland

Dear Steve,

HOAs are weird. Some have so few owners paying anything, that they cannot get loans for the community any longer. One client was paying fees on two units next to each other. The HOA never contacted them about being behind on one because either the HOA or the bank had changed something, so the payments were no longer going through. Why would someone pay one unit, but not the other? A simple phone call would have cleared it up, but they preferred to hire a $1k lawyer, who had to be paid by the client. Sometimes HOAs are their own worst enemies, by not treating their members with respect, when something needs to be repaired (a window or slider on the ground floor for example). People think the solution is not to pay, but unfortunately it is not. We are doing a lot of living these days, no?

Oct 09, 2011 06:42 AM
Beverly Femia
BlueCoast Realty Corporation - Hampstead, NC
Broker Realtor Stager - Greater Wilmington, NC Are

Steve, I had one of these on Topsail island and could not fathom what the association had to gain by foreclosing but they did.  It's true the homeowner had made enemies over the years but it looked like they had nothing to gain by the action they took.  They were maddening to talk to and I never figured out what was in the background.  I'm sure there was something they were'nt telling me.  

Oct 09, 2011 02:51 PM
Michael Singh,Broker
Singh Real Estate - Corral de Tierra, CA

Be careful some HOA's own the water system so if you don't pay the water won't be turned on either

Oct 09, 2011 05:12 PM
Michael Collins
*ROCK REALTY|Broker|Realtor|Real Estate|WI Short Sale Agent* - Janesville, WI
CDPE, SFR , Wisconsin Short Sale Specialist Realto

I have had similar issues with Home Owner Association dues with Wisconsin short sale condos. Thanks for the post!

Oct 10, 2011 02:56 AM
Christian de Almeida
Bal Harbour, FL

I agree with you unfortunately a lot of the HOA's including mine have an all or nothing mindset.

Oct 10, 2011 05:26 AM
Elisa Uribe Realtor #01427070
Golden Gate Sotheby's International - Oakland, CA
Opening the Doors to California Homes -East Bay

"If you have not had to negotiate with a Home Owner Association (HOA) regarding past HOA dues in order to get a short sale closed, well you haven’t lived." Spoken like a man who's lived through it!

I just closed a short sale in a condo and did tell my clients to keep the HOA dues current. It took 3 months to close the transaction and they were about to baulk if they had to pay one extra month more. AH...if they only knew how lucky they were! This was my shortest short sale yet. Having one loan sure helped!

Oct 10, 2011 11:10 AM
Sean Barber, P.A.
Charles Rutenberg Realty - Saint Petersburg, FL
Your Source For Tampa Bay Real Estate

Excellent advice on every key point Steve!

Oct 12, 2011 05:23 PM
Jayson Holland
Listings.com - Denver, CO
Jay Holland


Colorado IS a super-lien state and every single state should be. If you have never lived in an HOA community and/or never been on the Board of an HOA, maybe you dont understand how the budget of the HOA works.

Unlike the government, an HOA cant (easily) go into debt to pay its operating expenses, it also cant "print money".

The HOA has an operating budget for all of the things that the HOA provides to the community: water, sewer, trash, pool, roof, paint, paving, snow removal, grounds maintenance, clubhouse, insurance, gates, elevators, not to mention management fees and accounting costs, etc. JUST TO NAME A FEW.

All of those things cost XXX amount of dollars. So the HOA board divides XXX amount of operating cost by the YY number of units in the community (by 12) and gets ZZ the amount that each owner has to pay every month. Hopefully they are also funding their capital reserves or emergency fund as well.

IF the HOA has 50 homeowners and 5 of them are in foreclosure and 3 of them are short sales, that is probably 8 of the 50 not paying their dues. So instead of dividing XXX by 50 now it gets divided by 42, and the other 42 owners have to cover the costs of the deadbeat short-sale not paying his HOA (he probably still lives there and uses the amenities, too) So that $12,000 dollars has to be paid by someone else......the other owners in the community.

Not that the dead-beat cares, but the remaining owners are already going to have their property values injured by the distressed/foreclosure sale, and if you dont pay the past dues, you are reaching directly into their pockets.

Negotiate harder with the banks, not the HOAs. Make the banks take the hit, and stop screwing the neighbors.

The other fall-out is that as the HOA has to raise the monthly dues to cover the costs of these dead-beats, it makes it harder to sell property in the future because the dues are inflated.

A larger HOA can absorb a few foreclosures, but for the smaller associations, its a KILLER.

If your state doesnt have super-lien laws protecting the HOAs, you really need to push to get that legislation in place.






Oct 25, 2011 05:14 AM
Cathy McAlister
Cathy Ashley McAlister, GRI CDPE - Broker / Sacramento - Sacramento, CA
Sacramento DRE#00648507

We have been fairly successul in having our sellers pay their HOA's even after they decide to not make the house payments.   For many of them, they finally understand that NO HOA payments harm their neighbors much more than it harms the lender.  It seems, when that light goes on for short sale sellers - they would prefer to exit gracefully from their co-owners when they have the financial choice.  That personal bond between neighbors is still important, even in a short sale.

Dec 11, 2011 03:59 PM
Matt Robinson
Professional Investors Guild - Pensacola, FL

Yep, I have faced the same thing.  50% or so will negotiate and be reasonable, the other half are just ridiculous and will just force it into foreclosure if they have to get a penny less.  Even more frustrating is when you have a buyer or seller who agree to pay it, but the lender won't allow it because they feel the additional funds should go to them.  Had that happen too.

Mar 17, 2012 03:05 AM
Ginger Harper
Coldwell Banker Sea Coast Advantage~ Ginger Harper Real Estate Team - Southport, NC
Your Southport~Oak Island Agent~Brunswick County!

Hi Steve..

Great to see you on AR..I will be following you..

Feb 24, 2013 08:50 AM