Should My Short Sale Seller Pay HOA?

Real Estate Broker/Owner with Broadpoint Properties Cal BRE #01324959

HOA duesDear Melissa: 

I am representing a seller in a short sale. This seller has stopped making mortgage payments because she does not have much money. She lost her job. She wants to know if she can also stop making payments on the HOA dues. What should I tell her? --Confused in SoCal


Dear Melissa: 

It is often best not to advise clients as to how they should manage their finances—especially with respect to a short sale. That being said, the HOA in the state of California can cause terrible trouble in a short sale.

As you know, I am not an attorney and I do not play one on tv. Your client should probably seek the advice of an attorney if at all possible. That being said, in the state of California, if a property goes to foreclosure, the unpaid HOA dues become an unsecured lien that follows the seller. In order to close a short sale transaction in the state of California, the title company will require that the HOA is paid in full.

Frequently, short sale lenders will not allocate too much money for unpaid HOA. Some lien holders will not allocate any funds whatsoever, and others will allot perhaps $250 or $500. So, if the seller decides to stop paying the HOA and the short sale lender does not approve any funds from the proceeds to go towards the unpaid HOA balance, the seller will be required to pay the HOA plus any late fees and attorney fees (if the HOA has begun court proceedings to file a lien).

So, if I had my druthers, I’d say that it is best to keep the HOA current and paid, since you don’t really know whether the short sale lender will approve any money towards the HOA.

Good Luck! --Melissa Zavala


Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. James Lyon 12/23/2011 07:04 AM
  2. Michael Layton 12/24/2011 04:59 AM
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Laura Higginbotham
Arizona Real Estate Options - Mesa, AZ
Broker/Real Estate Consultant, Mesa, Arizona Home

I am sometimes faced with this same scenario. In AZ the laws are a bit different (no lien following foreclosure or short sale) so it is fairly easy to get the bank to pay some or all of the back dues....but not always. When my client asks me whether he/she HAS to keep the HOA current, I tell them they can if they need to,  but to put the money aside and save it. Iif the bank agrees to make up the past payments, great!  they can keep the money. If not, they will still have the money to settle up with the HOA at closing. I also advise this for recourse loans. When I'm asked if the borrower can stop making mortgage payments on a HELOC I tell them to set aside the money they would be paying each month just in case the bank requires a cash contribution from the seller at closing.

In difficult time borrowers want to hold on to as much of their money as they can...... but at the same time as agents we don't want to be faced with a shortage come approval (because we all know we can end up contribution our commission to finish the deal)

Dec 24, 2011 04:54 AM #44
Jirius Isaac
Isaac Real Estate &TriStar Mortgage - Kenmore, WA
Real Estate & loans in Kenmore, WA

Boy, I could not agree with you more. HOA's are a real killer or can be.  I always advice my clients to keep them current until the home is no longer in their name.  sure, it is different somewhat in each state, but bottm line is the same in terms of keeping up on them. 

Dec 24, 2011 05:50 AM #45
Melissa Zavala
Broadpoint Properties - Escondido, CA
Broker, Escondido Real Estate, San Diego County

Thanks to everyone for their comments. Seems like this is a hot-button topic these days.

Dec 24, 2011 07:26 AM #46
Bob & Carolin Benjamin
Benjamin Realty LLC - Gold Canyon, AZ
East Phoenix Arizona Homes

All good advise -- unpaid HOA dues can unravel a deal before it has a chance to go together.

Dec 24, 2011 07:43 AM #47
Ed & Terri Smith
RE/MAX Coastal Properties Destin Florida - Destin, FL

We have seen HOA fees in arrears to the tune of $100,000. We have one short sale listing today with $65,000 in HOA baggage. However, in Florida, the HOA will only be due 12 months worth of fees if the property goes to foreclosure. Because of that, many HOAs here will negotiate. The ones that will not, get what they deserve.

One important issue ... Back HOA fees should be considered in the BPO's. The buyer should then be advised that he/she may be responsible for them at closing. It should be considered when making the offer.  Just a thought.     

Dec 24, 2011 08:40 AM #48
Dörte Engel
RE/MAX Leading Edge - Bowie, MD
ABC - Annapolis, Bowie, Crofton & rest of Maryland

Dear Melissa,

Yes, if you want the short sale to succeed, paying your HOA increases your chances.

Dec 24, 2011 02:50 PM #49
Jim Hale
Eugene Oregon's Best Home Search Website

The lender may well not approve the buyer paying the HOA as part of price.  But it should be a lot easier than getting the lender to pay them outright.

Of course, the effect on the lender net would be the same either way.

Dec 24, 2011 03:37 PM #50
Randal Jenkins
Coldwell Banker F I Gray and Sons Residential, Inc. - New Port Richey, FL

Several comments hit on my thoughts.  If your seller intends to stay in the property for as long as they can, then they should pay the HOA.   The HOA foreclosure will be much faster and will shorten their stay.

As far as the concerns about giving legal advice, this is more of a collections/credit/foreclosure/short sale discussion, our input is not legal advice.

 Talking out the ramifications of different scenarios with your seller, and seeing how their circumstances fit is not giving a legal opinion. 

These sellers have gone through a bad time, not necessarily from their own mistakes.  They need the discussion and input of the possible scenerios and ramifications.






Dec 25, 2011 04:09 AM #51
Michael J. O'Connor
Diamond Ridge Realty - Corona, CA
Eastvale - 951-847-4883

Thank you for a great lesson!  I hadn't really thought too much about the HOA actually following the owner.  I knew that it was difficult to negotiate these in a short-sale and I knew that a foreclosure in California would remove outstanding HOA fees from title but I just thought they were like any other 'junior' secured lien that was in place at time of foreclosure.  I hadn't connected the dots that they would follow the homeowner even after foreclosure.

And as others have stated, HOAs DO foreclose on homeowners, even if the owner has equity.  In the past month I've seen one home which was owned OUTRIGHT by the homeowner be foreclosed for pennies on what was paid.  She paid about $100,000 for the home less than two years ago and owed $8K in HOA with the HOA trustee deed selling to a third party for $38,000.  I also saw another owner who put an 85% down payment lose her home to HOA foreclosure.  Quite sad to see.

Dec 25, 2011 07:35 AM #52
Sylvia Jonathan
Coldwell Banker Platinum Properties - Irvine, CA
Broker Associate, SFR

I also do not tell clients what to do about HOA dues, but I do share from personal experience that

  1. HOA's go more quickly to collection via attorney than lenders (hugely increasing the cost of releasing a lien)
  2. HOA's are stubborn when it comes to negotiating any settlement

With that factual information I let the clients make their choice.

Dec 25, 2011 12:02 PM #53
Kate Akerly
Kaminsky Group - Manhattan Beach, CA
Manhattan Beach Residential Sales

Though I generally try to avoid providing legal advice to clients (and if I do, our relationship becomes very complicated), I am an attorney and a broker.  I would always advice a seller to avoid going into arrears on their HOA/common charges/maintenance fees.  At least in NYC, many boards are moving very quickly to file a lien for common charges (i.e. after one month of delinquency).  Their attorneys will typically advise them to cc: the owner's lender with a notice of default.  A default on the HOA's alone is typically a default for almost all mortgages.  Additionally, depending on the state, some boards may actually be in first position above the mortgagee.  Even if they aren't they can initiate foreclosure proceedings (but the first position mortgagee would have to be paid-in-full from the proceeds of the foreclosure sale).  

No board will allow you to close without dealing with an oustanding balance first.  From what I've heard from others in the industry, they are far less likely to negotiate a discount off the outstanding balance than other lien holders, even when their obstinance seems to make little business sense.  In my opinion, sellers should stay current on their HOA's at all costs. 

Dec 25, 2011 04:19 PM #54
Monica Hill
RE/Max Associates - Wilmington, DE
the REALTOR to help you discover Delaware

Great post, Melissa.

Talking with an attorney is good advice for short sales but it also concerns me. Making sure it's a real estate attorney is crucial but also a real estate attorney who understands short sales is even more important. 


Dec 26, 2011 03:17 AM #55
Marnie Matarese
Showing you the best of Sarasota!

My last two short sales were entirely different due to HOA fees.  The seller who kept paying them stayed n the house for 19 months because the Homeowner's Association was not being burdened with nonpayment.  The lady who quit paying them was chased by the HOA and forced into a foreclosure quickly because no buyer would pay the back fees and she had no money.  My suggestion would be that if she can at all afford it, to pay the HOA fees.  Otherwise she will be paying rent somewhere else.

Dec 26, 2011 03:47 AM #56
Bob Miller
Keller Williams Cornerstone Realty - Ocala, FL
The Ocala Dream Team

Hi Melissa, Excellent post and excellent advice (non-legal).  HOA fees can be tricky here in Florida as well.

Dec 26, 2011 06:48 AM #57
Donna Paul
Keller Williams Realty Gold Coast - Dix Hills, NY
Long Island Home Specialist,All About Real Estate

Thanks Melissa for address this questions, It's always best to make sure that fee is  paid so that the lender wont hold up the short sale approval.

Happy New Year.. Wishing all the BEST in 2012!!!!!

Dec 27, 2011 02:13 PM #58
Liz Murray
Renaissance Home Staging & Redesign - Chandler, AZ
Professional Home Stager

Do not sit on the money for a short sale.  Pay the HOA dues. In Arizona, the law is very clear, after 12 month (no matter how small that amount is) or $1200 the HOA can foreclose on a home.  You could also be responsible for legal costs as well,.. although not many judges are awarding the legal fees these days. ...

And if the house is foreclosed on by a bank, there can still be a lien.  Our HOA did it about 10 years ago, got the house and then resold it for a profit!


Dec 27, 2011 02:36 PM #59
Judy Orr
HomeSmart Realty Group - Orland Park, IL
SW & Near West Chicago suburbs

A SS deal went south after 8 months because the seller didn't pay his HOA fees and the HOA wouldn't agree to his offer.  My buyer did not want to pay them so we didn't close.

Dec 28, 2011 06:25 PM #60
Dan Pinson
International Realty Partners - Phoenix, AZ

Your letter was a good one Melissa. Know your CC&R's and pay your HOA bill. If you can't, then foreclosure is more likely than a short sale.

Dec 29, 2011 05:53 AM #61
Steven Pahl
Keller Williams Tampa Properties - Tampa, FL
Real Estate Consultant Tampa, FL 813-319-6423

My only advice to a SS seller would be to pay what you can on all of your debts.

Jan 02, 2012 03:39 PM #62
Keller Williams Select Realtors-Buy a home in Washington DC. Sell a home in Washington DC - Bowie, MD
I don't make promises.I deliver results.SOLD HOMES

Melissa I am dealing with this problem right as we speak. I know my seller can't afford to pay the HOA Lien. Just sent a e-mail to my Short Sale Negotiator. Hopefully we can work something out since closing is bound to happen this month.

May 09, 2012 05:52 AM #63
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Melissa Zavala

Broker, Escondido Real Estate, San Diego County
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