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FORECLOSURE, BANKRUPTCY, HOW DO WE COLLECT HOA FEES??

It's 2009, and I am still ready to answer the hard questions. To be sure, HOAs had a hard time this past year collecting assessments with so many economic woes, foreclosures and bankruptcies (and its likely to continue). I have written on the subject of assessments time and again and done all that I can think of to help the HOAs figure out the best way to proceed in these though times. I see a lot of folks that can pay their debts frustrated in their HOAs by those who cannot.

I have recently blogged, and written free E-newsletters on the subject of assessments. (See my website, http://www.californiacondoguru.com, namely the E-News Archives, Articles, and Beth's Blog.) In addition, I offer Primers on the subject of Assessments, All About Foreclosure (these two are finished) and I am working on one related to bankruptcies in HOAs and how to collect through that process (when there is blood in the turnip - if you know what I mean). The Primers are only $25.00 and what you will get is the chance to "pick my brain" so-to-speak on the subject. Nothing is held back in any of the Primers. They are a great source of information at affordable prices.

That said, I received this followup from a reader to the recent bankruptcy blog:

"Great web site. I learned a lot.

I've always had a misunderstanding about HOA fees in California. I thought that they were payable by the property owner, similar to property taxes, and could not get wiped out by bankruptcy, and would remain attached to the property after a bankruptcy. From your web site I see that these fees are treated like any other unsecured debt, and are "unrelated" to the property.

My question involves what happens in a foreclosure (in California).

1. Specifically, if the HOA does record a lien for unpaid fees, and if there is a subsequent Trustee's Sale by a senior lien (first mortgage), does that HOA fee lien follow the borrower as is the case with a recorded judgment lien? Ie. the borrower remains liable for the fees?

2. Conversely, if the HOA does not record a lien for unpaid fees, and if there is a Trustee's Sale by the 1st mortgagee, do those unpaid HOA fees just evaporate forever and become a permanent loss to the HOA?

3. Will the buyer at the trustee's sale (or the lender in the case where the property reverts back to the lender), become liable for all new HOA fees as of the date of the trustee's sale? Will the new owner (on the Trustee's Deed) ever have to pay HOAs that became due prior to the trustee's sale?"

I am glad to know readers follow, think and respond. I can deal with generic questions here. As to the questions asked by this reader, I will offer some feedback; however, to get more, you will have to resort to the Primers. They each contain more than 15 pages of information!

Q1: Does that HOA fee lien follow the borrower as is the case with a recorded judgment lien? Ie. the borrower remains liable for the fees?

Answer: The HOA can proceed against the owner for unpaid fees in court, small claims or superior, and if a judgment is obtained, can initiate collection of it, even if the bank forecloses and extinguishes the lien.

Q2: If the HOA does not record a lien for unpaid fees, and if there is a Trustee's Sale by the 1st mortgagee, do those unpaid HOA fees just evaporate forever and become a permanent loss to the HOA?

Answer: No, again, the HOA can proceed against the owner. If they file bankruptcy however, then the bankruptcy "rules" kick in.

Q3: Will the buyer at the trustee's sale (or the lender in the case where the property reverts back to the lender), become liable for all new HOA fees as of the date of the trustee's sale?

Answer: Yes. And I have written extensively about the new law that allows HOAs to register to receive copies of the trustee sale when it occurs.

Q4: Will the new owner (on the Trustee's Deed) ever have to pay HOAs that became due prior to the trustee's sale?

Answer: That depends ............... It's complicated, and the Primer (A-2 Assessments on Foreclosure) should answer this for you.

Happy New Year!

Full post as published by California Condo & HOA Law on January 02, 2009 (boomark / email).