What happens when an HOA completes a foreclosure sale of its claim of lien for unpaid dues? There are several common outcomes which are listed below in order of frequency in our experience:
(1) The owner/occupants are evicted and the house is left empty. The Association should include this property on its general liability policy in case someone gets hurt on the property. Eventually, if there is a mortgage on the property (and there is almost always a mortgage) the mortgage company will eventually foreclose and take title from the Association. It is a common misconception that the Association is responsible for any outstanding mortgage if the Association completes a foreclosure sale. This is not the case.
On the other hand, there have been very few occasions where the taxing authority does look to the Association for any outstanding taxes. This happens with such infrequency that it should not be a serious concern for the Association in most cases.
When the bank forecloses, the Association loses title to the house and does not recover any of the unpaid dues or attorney’s from the collection effort. However, there is a notable positive – there is a new owner of the property after the bank’s foreclosure sale which will be responsible for all future dues.
(2) The homeowner occupying the property will pay in full in the face of the eviction threat or will arrange to rent the house from the Association. In most cases the Association agrees for the owner to pay fair market rent until their debt is fully paid at which time the property can be transferred back to the homeowner.
(3) The homeowner may file Chapter 7 or Chapter 13 bankruptcy. This would significantly slow down the Association’s foreclosure process and may or may not result in payment by the delinquent homeowner.
(4) In a few cases, the property is left in a condition that may allow the Association to rent the property to a new tenant to recover the debt of the prior homeowner.
There are other possible outcomes for the HOA foreclosure process, but the above reflects the most common outcomes. If you have any additional questions please feel free to contact one of our community association attorneys in the office.