Foreclosure & HOA Dues

[Team Work]

What is the name of your state (only U.S. law)? California

Our HOA had a lien on a unit for unpaid monthly dues. We recently foreclosed and evicted the owner. When another board member and I called the bank that holds the first mortgage to discuss the situation, we were told that the bank had also begun foreclosure proceedings against their original borrower (the person we evicted). I have three questions:

1. Does a lien for HOA dues take precedent over first liens similar to the way property taxes do?

2. Does the timing of the bank's foreclosure have an impact on whether or not the HOA can recover any of the dues owed? I believe that since we were in the second lien position, we won't recover anything unless the unit sells for an amount that covers the first mortgage plus all costs. But, I'm trying to find out if that rule of thumb is impacted by the HOA foreclosing first.

3. Since the HOA foreclosed first, are we now the legal owners of the unit? And, if so, couldn't we be on the hook for taxes, mortgage payment, etc .?

Comments appreciated

 

[NC Aggie]

Unlike tax liens, HOA liens are not superior and would be considered a subordinate lien to the mortgage lien. Now if the HOA forecloses first, then you all would be the legal and rightful owner, but you would still be subject to all superior liens (taxes & mortgage). If any of the superior lienholders forecloses before you all do, then your lien would be essentially wiped out.

 

[Team Work]

The HOA foreclosed first. Does that in any way impact our ability to collect the delinquent dues? And, could the bank now pursue action against the HOA, as the new owners?

Thanks

 

[FlyingRon]

It all depends if there was any money left after the senior liens are paid off.
Most likely your lien is extinguished without anything passing to you.
Of course, the good news is hopefully whoever is now the recorded owner will start paying dues though banks are generally dodging this by not recording the deeds.

 

[NC Aggie]

The HOA foreclosed first. Does that in any way impact our ability to collect the delinquent dues? And, could the bank now pursue action against the HOA, as the new owners?

Thanks

Well if you've foreclosed on the property, is it scheduled to go to public auction? Was this a judicial or nonjudicial foreclosure? At this point, the only way the HOA would likely collect upon their delinquent dues is if the property is sold with the mortgage lien and any tax lien intact which makes it more difficult to sell. And if the HOA has already foreclosed then the bank can still foreclose on the property. Keep in mind, the HOA is still responsible for any taxes accrued on the property during this time. It's really not in the best interest of HOAs to foreclose on property unless they can auction it off.

 

[Team Work]

It was a non-judicial foreclosure and it is not scheduled to go to auction. I agree that foreclosing was not a good idea (this was all done before I joined the board) but that is where things are now. I also understand that we are on the hook for the taxes. Once the bank figures out that we now own the property, will they pursue foreclosure against the HOA or will they let us just give them back the keys and take it off our hands?

 

[NC Aggie]

It was a non-judicial foreclosure and it is not scheduled to go to auction. I agree that foreclosing was not a good idea (this was all done before I joined the board) but that is where things are now. I also understand that we are on the hook for the taxes. Once the bank figures out that we now own the property, will they pursue foreclosure against the HOA or will they let us just give them back the keys and take it off our hands?

I honestly could not answer this question, it depends on the bank and state laws. I suspect that the bank may attempt to contact the HOA, if they haven't already. There may be the possibility for the HOA to negotiate deed in lieu of foreclosure. At this point, unless you all plan to auction, sell,or rent the property, there's no benefit whatsoever to maintain ownership.

 

[dmcc10880]

We've dealt with this in our HOA. You will have to go after the prior owner that was foreclosed on by the HOA for back HOA fees. Have your HOA attorney do an asset search, or take the prior owner to court (either Superior or Small Claims based on the amounts due). Once the bank takes over, it will be responsible for the HOA fees. What we've done is do short term leases on the properties we foreclosed on until the bank actually takes over the property. The sooner the bank forecloses, the better for the HOA.