Who pays HOA fees in a condo short sale?
I recently had a client interested in a condo listed as a short sale. In addition to owing a first mortgage against the home, the owner had also failed to pay HOA fees for many months. I wondered if my clients would be responsible for the HOA fees after they took possession of the property.
Shortly after hearing about this additional lien against the property, I got clarification on who owes HOA fees from our legal department. Here is what I learned:
In a normal sale, the HOA’s late fees must be paid off at Close of Escrow. If the HOA has recorded a formal lien against the property, the buyer’s lender will almost always require it before making the loan. If the HOA has not recorded a lien, then the HOA still has an unsecured debt which they can attempt to collect against the prior owner – but not the new owner.
In a short sale, if the HOA has recorded a lien, then it needs to be paid as a part of the short sale. Most banks will eat this cost and pay the HOA all the late fees. Some banks, however, will try to push this back on the seller to come up with the money. If this is the case, the buyer should be sure to wait until this issue is cleared up before allowing the property to close.
In almost every case, if the HOA has recorded a lien and then the seller’s lender forecloses, the foreclosure will wipe out the HOA lien. Once the bank owns the property, the bank becomes responsible for payment of the HOA dues from the time they take title until the day they transfer title to the next buyer/owner.
However, REO bank/owners are notorious for not paying HOA dues during the time they own the property. They pay up past dues at the time they sell the property to the new owner, but in the meantime many HOA’s are suffering cash flow problems.
Occasionally an HOA, usually out of ignorance, may attempt to collect the unpaid dues from the new owner. If this occurs, the new owner may have to fight with the HOA to straighten out the record. If the HOA puts up a fight, the new owner may even have to hire a lawyer to clear up the matter.
A good agent will check with the HOA about unpaid dues prior to close. And they will make sure that all unpaid fees and late charges are taken care of at close of escrow.
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