Don’t let your Neighbors Foreclose on YOUR Home!

Sounds crazy, doesn’t it?  But that’s exactly what’s happening all over the country, as cash-strapped homeowners associations begin foreclosing because of unpaid dues.  That’s right, your HOA/POA (property owners association) can file a lien for the unpaid balance, and can then drive your home into foreclosure, even if your lender isn’t ready to foreclose.

Because the foreclosed home will likely have no equity, or not enough equity to pay a junior lienholder like an HOA, foreclosing doesn’t really provide any revenue for the foreclosing HOA.  However, if the HOA wants to get into the landlord business and rent the home, they can then start recovering past due association fees.

But what if there is a short sale in process?  Let’s say the property doesn’t go into foreclosure, and the short sale has been successfully negotiated with the lender.  And now the lender wants to see a final draft closing statement including the payoff to the HOA.  Who pays that amount?  The seller?  The buyer?  The real estate agent?  Do you see what I’m getting at…you now have the proverbial monkey wrench in the deal, especially considering that these fees can be in the thousands of dollars.  Unfortunately, these deals often fall apart, and the seller and listing agent need to go find another buyer.  And the home is now that much closer to foreclosure. 

In some states, like Florida, there is yet another wrinkle in the story.  Instead of foreclosing, some HOAs are actually suing the senior lienholders, demanding that they remove their mortgages from the records or demanding that the lender foreclose!  Don’t believe me?  It’s called a “reverse foreclosure.”  See for yourself in the Washington Post.

So how does this affect to homeowners who are underwater on their mortgage and unable to pay HOA dues?  First, it means that you need a Realtor who understands how to price short sales and how to budget for junior liens.  Second, it means that you need to consult with an attorney regarding not just your mortgage, but ALL liens on your home.

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