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It was in late October that a very interesting story came out of Boca Raton. A man, Eric Nathanson, purchased a home at a foreclosure auction a month earlier. When Nathanson was ready to get the home ready for move-in, everyone who showed up at the property was turned away. These individuals included painters, realtors, and contractors who were asked to install the air conditioning. They weren’t allowed past the gate because the previous owner still had thousands of dollars of debt due to unpaid homeowners’ association (HOA) fees.
The case has now gone to the attorneys for both sides, who state they are trying to settle the matter without going to litigation. However, the story raises an interesting question. Who is responsible for homeowners’ association fees after foreclosure?
What Are HOA Fees?
Homeowners’ association fees are expenses, usually paid in monthly installments, that help with the upkeep of the common areas of the building. These fees help with the maintenance of pools, lawns, lobbies, laundry rooms, and any other common areas. All homeowners in the building typically pay the same flat fee. There are also condominium association (COA) fees that work in a similar fashion.
Homeowners’ association fees are governed by the Florida Statutes, Chapter 720. The Florida Statutes, Chapter 718 governs condominium association fees. In Florida, it’s not surprising that there are tens of thousands of HOAs and COAs. As such, the question of which owner pays the fees after the foreclosure is one that comes up quite often within the state.
Third-Party Purchasers at HOA Foreclosure Auctions Beware
Sometimes property buyers acquire title to real estate, not through a conventional purchase and sale transaction, but at a homeowners association or condominium association (hereinafter, “HOA”) lien foreclosure auction. Florida law provides that if the owner of the property that is subject to an HOA fails to pay the HOA assessments for the property, the HOA may record a Claim of Lien in the public records and then foreclose that Claim of Lien through a court proceeding.
If the HOA prevails in foreclosing its Claim of Lien, the court will enter a final judgment of foreclosure in favor of the HOA and set a date that the property will be sold at a foreclosure auction. Third parties may then bid for the property at the foreclosure auction. The winning bidder at the foreclosure auction will ultimately acquire title—that is, ownership—of the property once the Clerk of the Court issues a Certificate of Title in the name of the winning bidder. For property ownership purposes, a Certificate of Title has the same effect as a Warranty Deed or Quitclaim Deed.
Click to learn: HOA foreclosure vs bank foreclosure
Unlike a deed, however, that may provide the buyer certain guarantees about the status of the title to the property, a certificate of title merely passes the title from one party to another; it does not provide any guarantees about the status of the title to the property. In other words, if the property is purchased at an HOA foreclosure auction, there is no guarantee that the property is not encumbered by other liens, including a mortgage lien. The bidders at the HOA foreclosure auction are responsible for conducting their own, prior research as to the status of the title to the property, such as hiring a title company in advance to determine whether there are any other liens encumbering the property.
For example, if the prior owner of the property had an outstanding mortgage loan for the property at the time that the property was sold at the HOA foreclosure auction, the winning bidder at the auction will acquire title to the property subject to the lien of the outstanding mortgage loan. This means that if the prior owner stops making mortgage payments—which the prior owner is highly likely to do if the property has already been lost through an HOA foreclosure—the new owner of the property through a Certificate of Title will become responsible for paying off the outstanding mortgage loan balance. Otherwise, if the mortgage loan becomes delinquent, the mortgage lender may then commence foreclosure proceedings against the property to foreclose its mortgage lien. Therefore, someone who acquired title to the property as a result of an HOA foreclosure auction may then end up losing the property at a subsequent mortgage foreclosure auction, if he/she is unable to afford to work out an arrangement with the mortgage lender as to settle the outstanding balance of the prior owner’s mortgage loan account.
Potential Examples of Problems You Might Face
Buying a home at an HOA foreclosure auction might seem like a great idea, but be warned: there could be secret troubles lurking in the fine print. Here are a few problems you might face if you buy a home at an HOA auction without doing your homework.
Hidden Fees – If you buy a house from an HOA foreclosure auction, you might be responsible for paying HOA fees that weren’t disclosed. This includes fees from violations incurred by the property owner. It’s always a good idea to request an HOA estoppel or certificate.
Hidden Liens – If you purchase a house at an HOA action, there could be hidden liens attached to it that you will be responsible for. Perform a title search before buying property so you know about any liens, including HOA liens, attached to it.
You May Not Get the House – The initial property owner could take a last-minute action that would stop the sale of the house during foreclosure. For example, if they file bankruptcy, this would put a stop to foreclosure proceedings, causing potential legal difficulties if you already initiated a purchase.
Who Is Liable for Fees?
In the most recent story, the attorney for the new owner argued that the Florida statutes specified that new owners are not liable for fees. Unfortunately, that’s not true.
The statutes state that any owner, regardless of how they acquired the property, including through a foreclosure sale or a deed in lieu of foreclosure, is responsible for any fees that are due once the owner takes possession of the property. However, the old owner is also jointly liable for all fees and assessments.
This means that after purchasing a home through a foreclosure auction, the old owner and the new owner are jointly liable for any unpaid fees. According to the statute, each is equally responsible for paying those fees. Although many new owners believe this is an unfair practice, the statutes were put into place to protect the widespread problem of HOAs and COAs that were perpetually losing out on fees.
Can New Owners Sue the Old Owner?
When new owners move into a home that’s been foreclosed on and learn that they are liable for past-due fees, they often wonder what options they have. One of those may be filing a lawsuit against the old owner for at least half of the fees. However, this is rarely a good idea.
Firstly, it’s unlikely that the old owner has any money that could be won by the other side in a lawsuit. They have just lost their home, meaning they couldn’t pay their mortgage or the fees that are now due.
Additionally, the old owner may also have immunity from litigation. Often when homeowners have opted for a deed-in-lieu or a short sale, they include within the agreement that they cannot be sued for a deficiency judgment or any past-due fees. Although this may seem unfair to new owners, it’s very good news for the previous owner who couldn’t pay their mortgage and so after foreclosure, certainly can’t pay overdue HOA and COA fees.
The 12-Month Rule
The foreclosure laws in Florida are confusing, and they are also always changing. This means sometimes homeowners think certain laws apply to them when, in fact, they don’t. One of those laws is the 12-month rule. This rule is in the statutes and it states that new homeowners are sometimes only liable for paying back the past 12 months of unpaid fees and dues.
The caveat to this is that only sometimes does this rule apply. When the mortgage holder, such as the bank, takes the title to the property after foreclosure, only the past 12 months of fees are due. However, when third-party owners purchase the property through a short sale or deed-in-lieu, the 12-month rule does not apply.
Other Fees Associated with Overdue HOA Fees
It’s important both new owners and previous owners are aware of additional fees associated with HOA fees, as both are liable for the fees. Other fees could include:
- Assessments: When assessments are unpaid, the association can include these with the unpaid fees.
- Late charges: HOAs and COAs also have the right to include late charges, as long as the bylaws allow for it. However, these late charges cannot exceed $25 or five percent of the amount of every fee, or monthly payment, that is past due. The greater amount of these two can be used. Although this doesn’t sound like a lot, depending on the number of payments that are past due, it can add up to thousands of dollars.
- Interest: HOAs and COAs also have the right to charge interest on any late payments. This is different than late fees, as it applies interest to every late payment. As with late charges though, the bylaws must provide for this interest before associations can charge it.
- Attorneys’ fees: When the HOA or COA has incurred attorneys’ fees when trying to recover their fees, the new owner and previous owner are also jointly liable for these as well.
It’s particularly important that when homeowners are facing foreclosure, they speak to an attorney who can draft an agreement that will protect them from these fees.
Learn more: HOA foreclosure vs bank foreclosure
Case Studies: What Could Go Wrong?
While buyers can have success gaining new property from real estate auctions, they could also find themselves facing unforeseen obstacles. Consider the following scenarios:
Scenario 1
A mountainside condo near a ski resort has been abandoned. The person who abandoned the condo owed $200,000 on the mortgage and $10,000 to the HOA. The HOA has decided to foreclose on the property and put it up for auction.
Tyler is looking for a good ski lodge condo and thinks he just hit the jackpot. He doesn’t do any research and just buys the property for $200,000, the listed amount. Then he gets the bad news: to get access to the title, he needs to pay off the combined $210,000 of unpaid mortgage and HOA fees, essentially doubling the price. This may be worth it for an exceptional property worth $400,000, but that is not the case here. Now Chris is stuck paying the previous owner’s unpaid fees.
Scenario 2
Samantha wishes to purchase a beachfront property that is up for auction because the HOA has foreclosed upon it. She does her research and realizes there are still unpaid fees, but overall, she decides it’s worth the cost. She makes the winning bid and purchases the property.
Then she gets the bad news: the original owner has filed for bankruptcy at the last minute. Now, the property is tied up in the bankruptcy process as the original owner plans to make a series of payments to eventually get the property back. Unfortunately, Samantha cannot do much in this situation, and she likely will not get the house. She will only make money back as the original owner makes the bankruptcy payments.
FAQ About HOA Foreclosure Auctions
What should I do before buying a home at an HOA foreclosure auction? You will want to do your research before making a bid at an auction. A title search can confirm who owns the property and whether there are liens or unpaid mortgages. This is crucial information to know about before making a bid.
Is it safe to buy a home at an HOA foreclosure auction? It can be! Plenty of buyers have had luck with purchases at HOA foreclosure auctions, and plenty have unfortunately inherited financial troubles that came as surprises. If you’re unsure, it’s always a good idea to consult with an attorney before proceeding with the buy. They can help you spot any potential problems from far away.
What happens after I win? If you (the bidder) win the auction, you have four hours to sign the auction purchase agreement following the close of the auction. Within one business day, you must provide a deposit equal to
What happens to the current owner? Once you own the home, you get to decide how long the former owner can stay in the house. The final documentation of the sale will make it clear how long they have.
What about HOA liens? When you buy a home at an HOA auction, you might inherit any liens that are on the property. Check to find out if there are any liens or outstanding HOA dues before you finalize the purchase.
How can I prepare? One way to save yourself a bunch of trouble is to conduct a title search before making the purchase. This will inform you of any liens or mortgages on the property. If you do your research, you can find out about any outstanding fines or unpaid HOA fees that might then be inherited with the sale.
Another way to prepare is to review your local laws and governing documents regarding HOA auctions. For more specific questions, you can consult a foreclosure attorney before you make the purchase to ensure everything is on the level.
You can research the property by conducting a title search. You can also familiarize yourself with state association laws and the community’s governing documents, such as the HOA’s or COA’s Covenants, Conditions, and Restrictions (CC&Rs). If you have questions, you can consult a real estate lawyer or foreclosure attorney.
Our Florida Foreclosure Defense Lawyers Can Help
If you’re facing foreclosure, you’re at risk for more than just losing your home. You may also be held liable for association fees that can accumulate interest, late charges, and more. A Fort Lauderdale foreclosure defense attorney can help. At Loan Lawyers, we will guide you through the foreclosure process and give you the best chance of keeping your home. Even when that’s not a possibility, we’ll still ensure your rights are protected and that you don’t lose more than you have to. Call us today at (954) 523-HELP (4357) to schedule your free consultation to learn more about how we can help you.
Loan Lawyers has helped over 5,000 South Florida homeowners and consumers with their debt problems, we have saved over 2,000 homes from foreclosure, eliminated more than $100,000,000 in mortgage principal and consumer debt, and have recovered over $10,000,000 on behalf of our clients due to bank, loan servicer, and debt collector violations. Contact our Florida foreclosure defense lawyer for a free consultation to see how we may be able to help you.
