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.