I wish I could tell you that I am surprised at some of the issues being brought up during the processing of my clients' mortgages these days ... but the element of real surprise is long gone. It's now become "what will they think up next?" I certainly gain an education on many topics ... and it's never dull in my lending world.
All sorts of credit issues, employment, liens, personal histories, financial accounts, retirement accounts, and more ... for both buyer, seller, and even those providing buyers a monetary "gift" ... are coming under scrutiny. Detailed explanations are being demanded for everything. You don't comply, you don't close.
Now, it seems, there is to be one more issue to face ... and many lenders will likely be confronting it increasingly often and asked for clarification of circumstances during future processing.
That's the growing number of rigid and aggressive stands Homeowner Associations in many states are taking on overdue HOA fees.
Liens and Foreclosures are resulting from these actions!
This point was driven home to me when reading a recent article on www.npr.com, the National Public Radio website. This article told of an Army National Guard commander that served our country in Iraq just last year.
While in Iraq on mission, his wife called him in an almost hysterical state. The Homeowners Association that represented their subdivision in Texas had foreclosed on their $300,000+ completely paid for home. His wife had missed making only two payments. Someone had taken advantage of their delinquency and purchased the home through the court system for just $3,500 ... the amount outstanding on HOA dues and the Association's legal costs.
There are 33 states across our country that have ruled that Homeowner Associations need not even go before a judge in order to collect on liens they have placed on properties. In many of these states, foreclosure is also allowed on these liens ... Texas being one of those states. This is called nonjudicial foreclosure. (Additional information regarding Foreclosure Procedures by State).
In most instances, dues may not make up the majority of the dollars owed in a lien ... as legal costs are paid by the homeowner as well. As the economy has grown worse, HOA's have become increasingly more forceful in their pursuit of delinquent association fees. In Texas alone, what WAS the cause of only 1% of foreclosures, has now grown to 10%+ presently.
This is information that everyone in the real estate industry should be aware of. The chances of this popping up during processing of a home will be rising in many areas, whether the sale is involving individual homeowners or lenders.
Homeowners, (depending on the laws of their states), entering into purchase transactions that involve HOA rules and fees MUST be educated and alerted to the importance of making timely payments ... and the ramifications they will face if they do not do so. There could be extreme consequences.
There is some good news regarding the commander and his family from Texas. In 2003, Congress passed the Servicemembers Civil Relief Act. This Act is meant to protect service personnel and to prevent nonjudicial foreclosures against those actively fighting overseas.
The commander and his family hope that a judge rules that the Homeowners Association acted illegally, and that the sales transaction will be nulled, and their home will be returned to them. The case is currently slated for court at the beginning of the coming year.
Gene Mundt, Sr. Vice President
Personal NMLS #216987
The Federal Savings Bank
1823 Centre Point Circle, Naperville, IL 60563
Skype! 630-219-1316
You are right. Depending on the state, the consequences could be extreme. Look at the lien example you presented. I personally don't like the fact that I pay my dues on property I own in another state and my dues were jacked up this year to cover the shortfall caused by those who don't pay.
Barbara: I fear it happens more than we even know! This is something we need to be aware of. With the economy the way it is ... it will only grow worse. Thanks for writing Barb ... and hang in there!
Gene
Gene, I certainly hope this one has a happy ending. Even without the law, whovever bought the place should sell it back for what they paid! And you're right. It is important for owners to support their HOA.
As a member of an HOA, of course I want everyone to pay. But this Texas story is astonishing. That poor woman, her husband risking her life and some jackal trying to foreclose on her home.
Gene, I refer to the HOA as the Gestapo. Sure, there are some nice things about having an HOA, but more often than not I wish I had purchased outside the gate. (I have had two homes with very stringent HOA's...would not do it again).
Yes, almost anything is on the table for financing analysis in today's world. Fasten your seat belt, it is bound to be a bumpy ride.
Good morning,
I'm with Deborah,
Fasten your seat belt there are going to plenty of bumpy rides when it comes to HOA's! There has to be a balance!
Patricia: HOA's exist for a good reason. THIS foreclosure? Shameful under the circumstances. Seems a little drastic, given everything involved. Hopefully it's cleared up satisfactorily soon ...
Leslie: If you purchased in an area that has an HOA, you agreed to pay your fees ... no doubt about that fact. Everyone should be held accountable for them being paid on time. But you're right ... this was out-and-out predatory. Something smells about this ... and it makes me wonder. Who benefited from this over-zealous and aggressive legal move? Time may answer that ...
Deborah: I think you're right. And, as I said .. nothing is surprising anymore. Playing "top this" is getting old though. Let's get back to lending as it should be ...
Dorie: Agreed! I think because of the economy we're just seeing the tip of the iceberg regarding this problem. We all need to be aware and alert about this for the future. Thanks for writing ...
Gene
Many of our local HOAs have gotten militant. Once the dues are sent to collections, the attorneys fees and penalties make the lien go from hundreds to thousands of dollars. Fortunately we are a judicial state here, so HOAs have to go to court to foreclose and often times a judge will throw out a foreclosure on one of these smaller liens unless the owner gets served a summons by personal service.
What a terrible state of affairs. You are correct that some HOA's are getting like pitt bulls and I understand both sides of the issue. People don't pay and the assn is going bankrupt and still responsible for water bills, gas bills, etc. By the time the association gets thru with you in the end after attorney's fees, those 2 months you owed will be peanuts.
Illinois has a law that when you buy a forclosed townhouse or condo that the association has the right to receive up to 6 months worth of assessments PLUS attorney's fees to collect them from the NEW OWNER. So with a savvy agent, you have to find out what those are & included that in your purchase costs.
Good post, something that seems will definitely be more prevalent in the near future.
I wonder... do HOA's really have a choice? Same as with property taxes, the money collected is usually already committed and needed for ongoing expenses (whether they are justified or not that's a different story altogether). However, by the HOA not collecting money, there is always a potential negative impact to the community and to that effect to the property values, so it seems like a Catch-22 for a homeowner.
It would also be interesting to see if communities are getting militant with their HOA's asking for them to slash their budgets and expenses as well to account for differences in the economy. Would seem to be the only logical step for a concerned homeowner to me.
Thanks for sharing this info, Gene!
Does anyone know if there's a simple list available somewhere on the web that lists each state individually and what their status is regarding nonjudicial foreclosures?
I was once a member of an HOA board and I recall that some of the people on the board were actually delighted when we had to refer a matter to our hired lawyer, especially if the Board member had a grudge against the particular person/household in question. I found that attitude to be vile and when I moved out of the condo, I vowed never again to buy into another association, as you never know what kind of board you're going to be dealing with.
To that end, I also advise all my buyer clients, when considering a condo purchase, to speak with as many other members as possible to find out if they have issues with an over-reaching board. Better safe than sorry, I tell them.
That is an incredible story and so unfair. Someone needs to use some common sense.
Gene--Certainly the Texas example you give is shocking. On the other hand, in the late 80's and early 90's in Massacusetts, HOA's were going bankrupt left and right because the Unit Owners were paying on their mortgage and letting the common area fees ride. New legislation was enacted in 1995 which gave the Trustees some clout in collections.
I do a fair amount of collection work. let me reassure you that the notice provisions, at least in Massachusetts, are stringent. Moreover, my normal progression is to notify the Lender. The Lender's first mortgage is in jeopardy because in Massacusetts, sis months of common areas fees beats out even a first mortgage.
The goal in any collection like this is getting paid. I never want to hold an auction for common area fees, and so far I have not. There was plenty of blame pie to go around in the texas situation, methinks.
It is not good for the ball club when people are not paying their common area fees. Utilities get shut off and so deos water.
This is shocking! I had no idea! Thanks for the heads-up, Gene. I'm bookmarking this post for future reference while I research this issue further.
This is outrageous. Absolutely outrageous. I can see putting a lien on their home. I can not see stealing the $300,000 home away from them for a $3,500 lien....
This should NOT be allowed. I understand HOA's deserve their dues. But this is beyond outrageous - this should be criminal.
I think everyone understands that HOA fees need to be paid in order for things to run smoothly. But where's the common sense? Don't people who are in charge of these things (whether a management company or not) have any communication with the late payers?
Here in California HOA's are foreclosing on homes where the dues are not paid.
Yeah, Sharks are everywhere bitting at every morsel of kibble left out there. I know there's a lot of morsels out there, but there's a lot of competition looking for the score as well... Great advice about being careful where you stand on all fronts...
I have run into unpaid dues have put a kink into many of my closings in the past. I have learned to call the HOA every time whe I write offers or list houses. No more HOA surprises for me and my clients.
I'm new to the market and have all the signs of a naive wide eyed agent who is going to save the world from foreclosure, but it takes good sense on the owner's side too.
I attended a class on Short Sales, and the homeowner dues topic came up. The presenter was an attorney. They really are helpful when it comes to 'knowing' the law.
There is still a lot of junky advice being offered and people in many cases are being told not to pay these dues if going into foreclose or if trying to do a short sale. They are under the impression that the lender will pick it up - but even the reputable lenders are getting fed up and declining to pick of the tab. It appears that a lot of them are turning away offers for this very reason.
In your example, I feel certain the Homeowner's Association was out of line - a couple of months just isn't reasonable cause to do what they did. What an embarrassment to humanity.
Rob: It sure does sound like economics are the catalysts behind some of these HOA battles. This case I mentioned from Texas seemed like a worst case scenario to me. I understand that HOA's have to be able to enforce payments. Much rests on collecting of the fees. Still, homeowners' right must be protected with common sense and decency as well.
Lyn: Associations have a right to the money they are owed, for the good of the common cause. This is definitely an issue of which we must be aware ... and in turn, make our clients (sellers and buyers) aware of too. You are right on both ends.
Manuel: Buyers know when they purchase these properties that HOA fees are due on an on-going basis. HOA's legally deserve those fees. They NEED the fees to operate for the overall good. But when HOA's overstep those legal boundaries (which appears to be the case in this Texas foreclosure), they must be called on it. Most HOA's are run well and legally and current economic realities are being handled fairly. There are obviously some rogue Associations that do not conduct themselves honorably or legally. Hopefully the law is honored in this Texas case soon.
Thanks to all for writing and expressing opinions regarding this topic ...
Gene
Gene what a great article. I sometimes wonder who the heck is on these HOA boars?! I mean what happened to a simple neighborly visit? Only in America - sad, very sad.
Tim: I included a link in my article that should address your question regarding individual states. Additional information regarding Foreclosure Procedures by State). You can plug your state name into a search and that info should pop up for you. It sounds like you have a firm grasp on the realities of a cross-section of HOA's. Your clients will appreciate that knowledge and the fact that you are educating them regarding HOA workings.
Team Honeycutt: Most definitely! Hopefully the 2003 law stands-up and this family finds themselves back in their home.
Elliott: Sounds like your state is approaching this problem with some common sense ... and empathy. I agree that HOA's need to remain solvent and strong and deserve to receive their payments as legally prescribed. I particularly like that you contact the lenders involved in delinquencies. A definite thumbs-up on that! It's not only the HOA's that in some instances are not acting in good faith. I don't want to appoint them villains here. Homeowners must know that these fees are important and that they are legally due to the HOA. Hopefully when issues arise, something can be worked out ethically ... and legally both.
Gene
scary story... the actions sound unbelievable and illegal
hope it turns out ok
Bill: I'm glad I had a part in notifying you. If I can help with anything in the future, please let me know. I appreciate your writing me ...
Karen: Looks like we'll have a chance to find out if you're right. Hopefully after this case is re-examined at the first of the year ... the court will see to it that the family gets their home back. Sure sounds legally like this was a huge error on the legal system's part in the first place.
Margaret: That was the one part of the story that I couldn't quite piece together. The article made it sound like it all happened rather rapidly ... which is exactly why I wondered if their was a little foul play involved (just my opinion)?? The fact that active service military personnel was involved certainly should have changed things legally ... if not morally. Extra care should have been taken ...
To the Lori Bowers Group: It's a sad story to hear. HOA's have to have their dues ... but some circumstances have to trump that need, I would think. A fine line ...
Robert: Placing liens/foreclosures on late HOA payments is one thing, and legally I can understand that some circumstances dictate that this SHOULD be done in flagrant and large delinquencies. Otherwise, HOA's lose their legal recourse power. Who would pay if they thought there was never any legal retribution taken? But you are right ... predatory liens and foreclosures are a completely different thing and action should be taken to prevent them.
Rick: Live and learn, right? It's unfortunate that this is a lesson that you had to learn from past experiences. Moving forward tho ... your clients are much better protected through your knowledge and efforts.
Roseanne: You said it! It is an embarrassment. Your comment points out the importance of obtaining good advice and seeking a reputable, knowledgeable, and experienced real estate professional. This is true whether a buyer or seller ... and whether talking about a short-sale specialist, a buyer's agent, a mortgage lender, a real estate attorney, and etc. Not just anyone will do ... especially these days. Thanks for writing, Roseanne.
Gene
Harj: I do know that many HOA's have good people involved in them ... and that they get little in the way of thank you's. But, I understand your feelings. Too many stories like this one certainly blemish the reputation of Associations. These problems need to be addressed.
Vince: I think you express the sentiment of everyone here. I will keep an eye out for the results of the court date at the beginning of the new year. Thanks for writing ...
Gene
When I think of an HOA I thonk only bad things. It's usually a bunch of busy bodies with little else to do than try and control other people around them. I personally see little good in them and cannot believe this really happened. It's sad that anyone could have this power.
Oh my.... This is horrible. And it is going to court next year ? What are they doing now ... Are they still in the home or moved out ?
It seems there should have been some notice given before foreclosure. We are a non-judicial state, and foreclosure requires notice of default before foreclosure.
Hopefully, the judge will find for this family.
Steven: If run properly, I think they can be extremely useful for homeowners. It wasn't the power that this HOA, it was the inappropriate and non-sensical way it was used. Hopefully they get this issued straightened out satisfactorily ... and soon.
Roland: That info wasn't given in the two articles I read regarding the case. I'm assuming from the way they read .. that no, the family isn't in the house. It had been sold already. The whole foreclosure and sale will have to be un-wound in the courts. I hope they also pay restitution. I'll keep my eye open for the results and report what I find ...
Christine: Many parts of the story were incomplete. I have no idea what kind of notice, if any, was delivered to the wife in this story. It sounded as the whole notice, foreclosure, sale .. went very quickly. It just smells of something not being quite right .. IMO. And yes, hopefully this judge will show some sense and compassion and do the right thing by this family. Thanks for writing!
Gene
Gene, this is great information. While I can understand the plight of the associations during this tough economic time, I can't understand how this serviceman suffered such an injustice? Please keep us updated.
Linda: Will most certainly try to do that. The article stated that the new judge was reviewing the case after the 1st of the year. Look for something around that time ... hopefully ...
Thanks for writing ... and your stop-in at the office! It was nice of you ...
Gene