Foreclosure nightmares are still with us as are the three ways there are to lose a home.
1. A lender can initiate foreclosure actions when an owner is three months behind in their mortgage payments.
2. A Home Owner’s Association (HOA) can initiate foreclosure actions when an owner misses payment of dues for one year or, whichever comes first, $1,200 in default of monthly maintenance fees.
3. A state can initiate foreclosure actions when an owner does not pay their property taxes.
Today, HOA foreclosures are surging as lender foreclosures are dropping. And, HOA foreclosures can be more tricky than lender foreclosures because HOA actions can add legal fees and interest for late payments to lack of payment debt. Sometimes, the legal and interest fees are quadruple to the debt on the delinquent HOA fees.
For example, let’s say that an HOA tells a member to have his roof pressure cleaned in 30 days and the member doesn’t do it. The HOA fines the member $1,000 for not doing the pressure cleaning within its 30-day order. The member doesn’t pay the fine. The HOA then slaps on a late payment penalty and hires a lawyer who generates legal fees. Now the homeowner owes a total of the HOA penalty, the legal fees and the interest on the late payment. When that total exceeds $1,200. the HOA can initiate foreclosure proceedings.
Or, let’s say that a homeowner pays her mortgage payment on time and does not pay her HOA fee on time because she doesn’t have the money to pay both. When she does have the money to cover both, she’s handed a bill that far exceeds HOA monthly fees due to the legal and interest fees that have been tacked on. She proposes a repayment plan. Her HOA rejects her plan. She is notified by her HOA that it has filed foreclosure proceedings on her home.
There are approximately 350,000 HOAs in the country and most of them are unregulated. In Arizona alone, there are 9,000 communities with HOAs, nearly 50% of all communities in the state.
City Property Management has 20 of the 50 HOAs in Arizona’s Maricopa County. “We use foreclosures to get faulty homeowners to pay,” Brian Lincks, president of City Property, told the Arizona Republic. “We don’t want their houses…about 90% of our HOA members pay when we file a foreclosure…when they don’t (pay)…we prefer a repayment schedule rather than a foreclosure.”
Lincks criticizes HOAs that go the foreclosure route. “All that legal maneuvering and layering on of fees and interest penalties…are like payday loans. Again, I want a solution that helps the owner keep their home.”
Of the +6,000 foreclosures filed in Arizona in 2016, +3,000 were filed by HOAs and lenders filed +3,000. (During the crash, lender initiated foreclosures in Arizona topped 41,000 while HOA initiated foreclosures were next to nothing.)
Agents…make sure your clients know the workings of their specific HOA as well as their responsibilities to it.