Why Paying Your Homeowners Association Fees Beats Foreclosure?
If you are struggling to make your monthly mortgage payments on your home or condo, you may not want to stop paying your HOA fees. Your association could foreclose before the bank! Many homeowners are unaware of the legal and financial consequences of not paying their dues.
There’s a lot to know about owning a home or condo with a homeowners association. Understanding the consequences of not paying your homeowners association fees is critical.
Your Homeowners Association could file a lien and foreclose
The fact is, in most states the association can place a lien on a your home or condo unit for non-payment and force a foreclosure sale of the property. This could happen even if the owner has been making their mortgage payments.
After a foreclosure sale, the owner is then evicted and the property is transferred either to a third party or to the bank holding the mortgage if the home or condo unit is not purchased at auction.
Your HOA could evict you directly
In some states, other legal remedies exist for non-payment of Homeowners Association fees. The association can file a forcible lawsuit, take possession of your home or condo unit and evict the owner. They then can rent out the property to recover:
Unpaid Homeowners Association fees
Any other fees charged to the unit
If the owner is renting the unit, the tenants can be ordered to pay their rents to the association instead of the owner until the delinquent amounts are caught up.
You may be subject to wage garnishment
Even if the bank forecloses on a property, the prior owner’s responsibility to pay delinquent Homeowners Association fees may not end.
If the association has taken legal action to obtain a personal judgment against the owner, that order to pay stands even if they no longer own the unit. To recover what is owed on the judgment the association may be able to:
Lien on bank accounts
Lien on other assets, such as 401(k)s
Pursue wage garnishments from an employer
Legal fees can exceed the unpaid homeowners association fees
Associations hold a lot of legal power to collect their HOA fees that come with home and condo ownership, and the legal fees to enforce payment can be added to the balance. This can send the total amount due to skyrocket well above your past due fees. You may double or triple your debt to your HOA.
Delinquent HOA fees can derail selling your home
It’s always advisable for owners to continue paying their HOA fees (which are usually much less than a mortgage payment).
However, if you're behind on your association fees, you'll need to pay off the balance in the sale.
Buying a home or condo with a HOA? Read my blog article, 5 Common Reasons Buying a Condo May Fail Due to the Condo Association, which covers excessive delinquencies with an association.
You owe more on your home than the home value
If you have a mortgage, and the remaining mortgage balance is greater than your home value, you could be in a tricky situation.
This process for selling your home is called a "short sale". A short sale takes place when the seller owns more on the mortgage debt than than their current home value. To sell their home, the seller will need to get their lender to agree to the sale, and how the proceeds will be distributed.
If your HOA put a lien on your property, they'll most likely be subordinate to your mortgage(s). This means your mortgage will first be paid from the proceeds of the sale before your HOA fees.
You'll need to either pay off the past due balance, settle it, or have the buyer pay the balance. You may even need to comply with terms and conditions set by your mortgage lender's as a condition of allowing you to sell your home for less than the full pay-off.
Buyer's will sometimes agree to pay it. If you're selling your home as a short sale, it is possible the seller's lender may agree to pay something to the association settle their lien. However, every lender's short sale program guidelines are different, and the amount, if any, paid to an HOA varies.