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July 21st, 2010

Borrower Beware: Your HOA Can Foreclose on You!

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“I had no idea that they could foreclose.”
-Tony Goodman (homeowner)

For those who are unaware, your homeowners association (HOA) can foreclose on your home for delinquent dues. Some borrowers are getting the surprise of a lifetime when, despite putting every penny towards staying current on their mortgage, they still lost their homes. But they didn’t lose their homes to their lender; they lost them to their local HOA:

“I owed the HOA very little money in comparison to what I owed my mortgage company and my mortgage company, which is Chase, bent over backwards to help me,” Goodman adds. Even as he was working on a loan modification, Goodman’s HOA, Lookout Canyon Creek in San Antonio, TX took title to his home on the steps of the Bexar County Courthouse. They purchased the home for $2,019, about the amount of the dues plus attorneys fees.

Apparently this is not at all uncommon these days, as struggling borrowers let the dues slide, thinking it’s more important to throw all their cash into their mortgage payments.

Each of the 34 states that allow HOAs to foreclose have differing rules. For example, the redemption period — the amount of time a homeowner has to repay the back dues in order to get their home back — in Texas is 180 days. In Florida, the redemption period is only 10 days. In essence, an HOA can purchase your home on the courthouse steps for pennies on the dollar and then sell it before you even have a chance to pay back the past dues.

The HOA foreclosure process tends to be much swifter than if your lender were to foreclose. This often works in the HOA’s favor:

Since the big banks on average can take over a year to foreclose on a home, the HOAs can swoop in, take title, boot the borrower, and either rent or sell the home for a good six to twelve months before the bank comes in with the far bigger lien and forecloses again.

In the defense of HOAs, homeowners did sign contracts that laid out the ground rules and the consequences for delinquent dues. Also, some of the associations have claimed that lenders are foregoing writing new mortgage loans in neighborhoods where HOA delinquents are high:

Andrew Fortin of the Community Associations Institute makes a compelling argument, saying that in some cases now, where HOA’s are having serious delinquency problems with dues, new buyers are having trouble getting mortgages. Apparently big banks want to see healthy HOAs. Also, the HOAs have to pay their own bills to the service providers in the community. If they don’t get the dues, then they fall behind as well.

As if struggling homeowners didn’t have it bad enough…and believe me, we’re not seeing a federal program in the near or distant future that will modify HOA dues. Borrowers beware: not only can your lender foreclosure on your home if you miss payments, your homeowners association can as well, and it will probably happen a lot quicker.

Readers: Perhaps it’s a good time to go back and read your contract…Did you know your HOA could foreclose on you?

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3 Responses to “Borrower Beware: Your HOA Can Foreclose on You!”

  1. Tweets that mention Borrower Beware: Your HOA Can Foreclose on You! | HSH Financial News Blog -- Topsy.com Says: July 21st, 2010 at 11:44 am

    [...] This post was mentioned on Twitter by HSH Associates, Heath Lackey. Heath Lackey said: Borrower Beware: Your HOA Can Foreclosure on You!: The HOA foreclosure process tends to be much swifter than if yo… http://bit.ly/bhSoFK [...]

  2. HOA forecloses on Burleson woman over fees – Hamilton Mill Dacula GA Home Owners Update « Georgia Loan Modification and Short Sale Information Says: August 31st, 2010 at 3:59 pm

    [...] Borrower Beware: Your HOA Can Foreclose on You! (hsh.com) [...]

  3. Single Source Training » Archive » Can my homeowners association really foreclose on my home? Says: October 8th, 2010 at 4:05 am

    [...] should HOAs use foreclosure to collect relatively small amounts when there are other effective ways to get their money, such as [...]

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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