Who pays past HOA dues in an REO?


#1

A buyer is purchasing a bank owned home. No lien was ever filed for the back delinquency. HOA is saying new owner is responsible, all the laws we’ve read say no. HOA would have to pursue the previous owner. The buyer is calling an attorney. ?Looking for experiences with this matter. Thanks.


#2

Hi Catherine,
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I’m a Realtor and I?list and sell REO properties in Southern California, and to my knowlege you are correct, the seller is responsible to pay the back HOA dues, and if they failed to, the new owner is NOT responsible.? The HOA has legal recourse to go after the prior owner for any dues assessments that occurred when that person/persons owned the property.? NOTE HOWEVER, it all depends on what the purchase contract says.? The standard purchase agreement says seller is responsible to pay the HOA dues current at the time of closing (as well as any delinquent property taxes or other liens) and that title will pass free and clear to the buyer.
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I am very confused how this could happen.? If the buyer received a title insurance policy at the time of the purchase, which they would?HAVE TO if the purchase?was financed, then the title insurance company would not have let the sale close without the?delinquent HOA dues (including late fees, etc.) being paid off in full at the time of the closing.
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If the buyer looks through their escrow documents they should most likely have a title insurance policy, and by contacting that company the buyer should be able to find out what the heck happened.
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Your purchase agreement should have contained verbiage stating that title would be passed free and clear to the buyer, and that HOA dues and property taxes would be PRORATED TO THE CLOSE OF ESCROW.? If the seller failed to pay a delinquent amount, they may have been in breach of the contract, unless the seller’s addendums contained language to negate the seller’s responsibility to pay these items current as of the closing date.? I have not heard of any REO sellers doing this, although I suppose it is possible.
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You can start with contacting escrow and the title company to find out who screwed up, but if the HOA is dead set on pursuing the buyer for unpaid HOA dues, you want to deal with this head-on ASAP.??It probably?would be wise to get an attorney.? Perhaps you can get one to simply write a letter to the HOA for a couple hundred dollars, and such an action may be enough to get them off the buyer’s back without any further action and without any significant expense.
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Good luck!
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–David Santucci
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–David Santucci?


#3

Nice post David, thank you. I’d only add that you need to separate the fees into 3 separate time periods: ? 1. Before the auction occurs - the prior owner is responsible for this, and any claim the HOA has was wiped out at auction. Some HOA’s claim this isn’t true and think their fees are super-senior. That is possible in some states, but I don’t believe it is in CA. ? 2. Between the auction, and the transfer to the new buyer - the lender (or seller) should be responsible for this period of time, though you could agree to whatever you want in the purchase agreement. ? 3. The period after the resale - here the new owner is clearly responsible. ? As David said, I’d start with the title co. If the HOA is coming after you and you got title insurace I believe they will actually work to resolve the issue on your behalf as that is what title insurance is for - protecting you from unwarranted claims on title.


#4

The past due HOA dues should all be addressed in escrow. The title company will issue an owners policy that insures you have clear title which includes making sure there are no back HOA dues that are owed. That said, when you are in escrow the HOA may be trying to collect back dues from the lender and the lender may refuse to pay (rightfully so since the past due dues are the responsibility of the previous owner). We have heard of cases where the buyer has agreed to pay the past due dues so that the escrow can close if that is the only thing that is holding up the escrow. This may be the reason this topic seems so confusing.


#5

You’re assuming there was an escrow and title company involved, however, in low market rate transactions, like short sales, this is typical with an investor buyer. When no escrow/title is involved, there is no contract guarantee for clear title and when there is no foreclosure nothing is “wiped out”.


#6

@Valley – I am not assuming anything of the sort, at least not without good reason. The original post stated this was a bank owned property. Not a short sale. Bank owned means there WAS a foreclosure–or at the very least, a deed in lieu of foreclosure, which is rare enough we can safely assume it was a foreclosure. The poster’s name says she’s from California. And I am not aware of any loan servicers who sell REOs in California without using title and escrow.

Regarding your other comments, any cash investor who would purchase any property–ESPECIALLY a short sale–without title insurance, has got far more money than brains. I have known plenty of cash investors and I have never met a single one who had an aversion to using an escrow company, and I have never met one who would be foolish enough to purchase real estate without title insurance. So I really don’t know what kind of cash investors or transactions you’re talking about. Just because someone doesn’t have to get title insurance to get a mortgage loan, that doesn’t mean they don’t still get title insurance to cover themself. (Unless they’re someone with an invincibility complex and a high need for extreme risk taking. In which case bungee jumping would be a much safer thing to do and probably more fun too.)

Just my opinion, and speaking from my experience… Maybe folks in other states do things differently that what I see here in California.


#7

Regarding back HOA dues:

Go to the Recorder’s Office and track down the CCRs for the HOA, or use the CCRs that were provided in the transaction.

In California, banks will not loan on any property inside a condo/HOA complex where HOA dues survive a foreclosure by the bank. Therefore, CCRs clearly state that all deliquent assessments are wiped off (the property, not previous owner) by a foreclosing lender. The HOA can record a lien for back assessments (Notice of Assessment), but usually that is recorded to notify title/buyers for a future normal purchase transaction that has title and escrow.

If the lien (or back dues) occur AFTER the foreclosing trust deed (which they all do, because the prior owner went through title/escrow 99% of the time), then it is wiped off the property. It can stay recorded against the prior owner, but it is not a title hindrance on the property.

So, at the point of foreclosure auction date, back dues are wiped out. The new owner (foreclosing REO bank) becomes responsible for dues from that point forward. So any dues owed after that need to be worked out through escrow when you purchase an REO. If someone purchased an REO and it went through escrow/title, then the escrow company missed it and the REO Bank seller should have paid them. If there was a clause in the purchase agreement that said buyer would pay all back HOA dues, then that would be an exception to normal practice.

Hope this helps


#8

So, if an investor purchases the property from the auction(California is non-judicial) the past HOA dues are wiped out? They are only responsible from date of trustee sale purchase? When the resell the property the lien that was filed on the property doesn’t become an issue for the resale? Sorry for the double post but i entered the wrong email address…

Thanks,


#9

Hi Offthefront66, HOA’s are typically NOT pre-liens like property taxes. A lender will not fund a loan if the HOA dues are delinquent. The past due dues are then wiped out at trustee sale since they are “junior” to the Deed of Trust. The previous owner may still be responsible for the past due dues but the new owner or lender is only responsible for the dues from the date of the purchase forward. There have been numerous cases where an aggressive HOA has held up a sale on this issue. I have even seen buyers agree to pay just to get a sale closed. You would want to make sure you are working with a title company that is willing to insure around this issue if you are unable to get a HOA demand that does not include the past due amount.


#10

Very helpful information, thanks for the good discussion.

We have a home in our HOA that was foreclosed back in May, and is now being sold from the bank to a new homeowner. The realtor who sold the property, is telling us that we have to supply a copy of our ledger before the bank will pay the outstanding dues.

I understand, from the above discussion, that they only have to pay any dues and fines since the house was foreclosed. Is this “ledger” request, just a tactic to get us to drop collecting the dues? Can they demand such a condition, before they pay?

Thanks,
Cory


#11

Chances are they are looking for something in writing so that they can determine what they owe based on the dates. That way they can clearly define what they see as the amounts they need to pay NOT the total amount you show on the books from the previous owner.


#12

Bought a home with cash in oct. From the court house auction in florida. Hoa says i owe back dues of previous owner I havnt spoken to an attorney yet but I was just curious if anyone else has run into this situation?


#13

Hi Mike, The laws vary from state to state. Florida is very different than CA. You would be best served to consult with a real estate attorney that can look at your specific HOA and see if the lien was indeed superior to the foreclosing loan.


#14

So, in California, if there’s only one trust deed and it is recorded before the HOA lien and the trust deed goes to auction, the HOA lien gets wiped out. But what if the HOA DID NOT file a lien and there are unpaid HOA dues. Would the person who buys at the auction have to pay the past due HOA fees? Thanks!


#15

Hi Tom, In CA most HOA’s are typically not a “super senior lien”. This means that any past due dues are junior to the Deed of Trust. This is why a lender requires the HOA dues to be current as a funding condition of the loan. They then know that any dues that fall into arrears after the recording of the Deed of Trust are inferior to their lien position. Please note that I say “typically”. You would always want to verify this through title research. As with any title information you never want to assume anything.


#16

I am looking for the CA civil code that lays this out - ie., that past dues of the HOA (or any other agency) is not the responsibility of the NEW buyer of the foreclosed home and they cannot be pursued for it. ? I have searched through the codes up and down, left and right but it’s buried in there somewhere. ?

(Yes, I know I know, get a lawyer. ?But that will only cost me more, maybe even more than the issue itself). ?Thanks


#17

California Civil Code ?1466. Dave