Monday, January 21, 2008

Short Sale Showdown: HOA vs. Condo Owners

This story is definitely a must read if you own a condo (and especially if you are falling behind on paying your HOA dues). Homeowners Associations for condos are cracking the whip on those residents who are in short sale situations - sales in which mortgage holders agree to take less than they are owed to avoid foreclosing on the property. This article gives us an example of the condo owner who thinks they've sold their condo and negotiated a short sale with their lender but is stopped dead in their tracks and the sale falls through because the HOA is demanding their full share or they will file a lien on the property. What buyer is going to buy a condo with a lein already on it? Zero. So we have a seller who obviously can't pay the dues and the lender certainly isn't going to since they are already taking a loss. So who pays the dues? Good question but let's look at who really has the most to lose.

The article makes a good point in saying if the dues are not collected they usually end up collecting the money from the other residents which increases their HOA dues. It's not fair but the money has to come from somewhere, right? But also keep in mind the HOA isn't just after the unpaid dues. Attorneys fees are now involved so the number just keeps growing. What a mess!

I think HOA's in general are a huge pain in the ass to deal with and I have plenty of stories to back that up. But I have to comment on this quote from an attorney who represents many HOA's.
"Realtors were making a ton of money," Meisner said. "Mortgage companies were making a ton of money. All of a sudden, because the cookie is crumbling, they expect the condo association to take a bath on it. I don't see any reason why they should."
What?!?!?! What does the Realtor have to do with a seller who isn't paying their HOA dues? The bank is the one who gave the seller the money so they might be partially to blame but they are also losing money on the deal so they're being punished. So why bring up the Realtor saying they expect the condo association to take a bath on it? The condo association assumes the risk of not being paid when it's formed! But I digress.

I'll stop bitching and get to the possible solutions. The HOA is holding out for 100% of what they are owed plus their attorney's fees which is a great way to end up with - you guessed it - nada, zip, zilch, NOTHING! The bank is willing to negotiate a loss but the HOA is not willing to forgive the unpaid dues so the bank ends up with a condo they don't want and the HOA gets no money for dues or their attorney's fees. You would think it would behoove the HOA to get involved with the negotiations and see if they can't get a little cash out of the deal whether from the buyer or the bank. But the sad truth is that they are willing to let the condo go into foreclosure and turn around and get the money - and the attorney's fees - from the other residents. You.

So beware if you're a resident in an association that's killing short sales because of uncollected HOA dues. You might be proud of your HOA for standing strong and demanding to be paid what they're owed. The truth is that there is no one to get the money from and if they allow the home to be foreclosed on, you, the responsible home owner, get screwed twice. You now have a foreclosure sale on the books which is most likely a lot less than what you paid for your condo and your HOA dues increase to make up for the loss. I live in a townhome community and you better believe I'll be all up in the HOA's business trying to see what we can do to avoid a foreclosure sale in my neighborhood. You should too. Otherwise you end up with a lose-lose.


  1. Question - What effect does a short sale have on comps? Currently, we have a short sale of a home in progress in our neighborhood...and the sale price per square foot is less than 75% of the price per square foot of comparable homes currently on the the market in our neighborhood. If there is a negative impact on comps, perhaps it is more responsible to community residents if the HOA Board does force the foreclosure.

  2. If this short sale is obviously an anomaly then the comps will show that. If there are quite a few short sales and/or foreclosures then the comps may start bringing down the neighborhood numbers.

    In response to you saying it may be more responsible for the HOA to force the foreclosure, who's to say the foreclosure price will be higher than the short sale price? Typically it's the other way around. Short sales actually have real live sellers that are fighting tooth and nail for every penny. Once the home is in foreclosure you're dealing with a bank who doesn't want the property on it's books. Guess which one will probably sell at a lower price and bring the neighborhood numbers down more?

  3. Here we have not had that issue. Most of the deals that we put under contract do to through to closing. The only agents in my area that are having problems are the ones that have "iffy" buyers who are not qualified and those agents who are not detailed oriented and let things get by them. Those that handle short sales a lot are also in for a lot of disappointment, as are their buyers.

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