In the past month, our firm was contacted by several people who purchased properties at a foreclosure sale. Normally, purchasing a property at a foreclosure sale does not create many legal issues. But these buyers weren’t buying properties at a normal foreclosure sale.
A normal foreclosure sale happens when a bank forecloses its lien (the mortgage) on a property and takes the property back from the homeowner through the foreclosure process. These buyers were looking to purchase properties at a homeowners’ association (HOA) foreclosure.
Before buying an HOA foreclosure, researching whether the property has an outstanding mortgage balance is crucial.
Bank vs. HOA Foreclosure
When someone purchases a home or condominium in a planned community, they will probably have annual or monthly assessments and fees paid to the HOA or a condominium owners’ association (COA). If they fall behind on paying these assessments the HOA has the authority to attempt to collect on what is owed. These organizations generally first use more conventional tactics such as sending the debt into collections or filing a lawsuit. When that doesn’t work, the HOA or COA can choose to take more drastic measures.
HOAs and COAs have the power to place a lien on the property. The lien prohibits the homeowner from selling or refinancing the home. In addition, the association can foreclose on the property even if the property has a mortgage.
An HOA foreclosure differs from a lender foreclosure in that the HOA is seeking to sell the property for enough money to recoup its outstanding lien on the property. It usually has nothing to do with the mortgage or the lender on the property.
HOA Foreclosure Can Hide True Price of a Home
Let’s say, for example, that a person abandons a condo on the beach. At the time the person abandons the condo, they owe $250,000 on the mortgage and $25,000 to the homeowners’ association. If the mortgage lender does not foreclose, the HOA can foreclose and sell the condo at a foreclosure sale. This is what happened to the buyers mentioned above.
The problem was that there was still an outstanding mortgage attached to the property that did not get foreclosed out. The buyers were unknowingly buying the property subject to the outstanding mortgage. In essence, they paid the $25,000 to make the HOA whole, but they still must pay an additional $250,000 to the mortgage lender to get clear title to the property.
This additional obligation may be all fine and dandy in a situation where the condo is worth $500,000. Unfortunately for these buyers, the properties were worth much less than what was owed on the outstanding mortgage. All they did was give money to an HOA and inherit an underwater piece of real estate.
These buyers thought they were getting the deal of the century when they purchased the condo for $25,000 at the HOA foreclosure sale, but they didn’t realize that the mortgage had not been paid in years and the property was considerably upside down.
Research Could Save Homebuyers Big Time
The lesson to be learned here is harsh. When you think you’re making the deal of the century, you should do a little bit more homework and make sure that there are no outstanding mortgages or other liens attached to the property. Conduct a title search and lots of research before buying a property at a homeowners’ association foreclosure.
Foreclosure Defense in Florida
If you own a home or condo that is at risk of either bank or HOA foreclosure, call our astute legal team at The Dellutri Law Group, PA. We can evaluate your case and provide options to potentially save your home from foreclosure. We can help even if your home is already in the foreclosure process.
We have served Southwest Florida since 1998. Our wide-ranging experience gives us a deep understanding of foreclosure, debt, and bankruptcy law. Put our experience to work for you.
Use our online form or call (800) 391-4337 to schedule a complimentary strategy session with our team.