Can the Homeowners’ Association (HOA) Foreclose If I Don’t Pay My Dues?

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Many people have been led to believe that a homeowners’ association cannot foreclose on their home.  That is not true!  Homeowners’ associations foreclose on property everyday across America and very likely everyday in North Carolina.

Happy Family Standing Together

If your neighborhood has a homeowners’ association, you received and signed documents acknowledging the association’s rights when you purchased your lot or home.  As a matter of fact, participation in the homeowners’ association was not an option for you, it was a requirement if you wanted to purchase your lot or home!   Many people do not read the documents and realize the requirements and powers of the homeowners’ association when they purchase their property, since it was just one of the many documents signed the day of closing.

Your neighborhood will have bylaws and covenants that are specific to your homeowners’ association, but it is under North Carolina General Statutes Chapter 47F that all homeowners’ associations obtain their power.    Under Chapter 47F-3-116 Lien for assessments, the homeowners’ association can place a lien on your home or lot if you do not pay your assessment.  If the amount owed is “…unpaid for a period of 30 days or longer…” the homeowners’ association may file a lien on your property with the Clerk of Superior Court.  The statute provides the timelines, procedures and notice requirements for filing the lien.  If the homeowners association files a lien on our property and the assessment remains unpaid for 90 days or more, the homeowners’ association may foreclose on the property just like your mortgage companies.

Unfortunately, many homeowners ignore the letters they receive from their homeowners’ association.  Most often the letters are ignored because the homeowner does not realize the power provided to the homeowners’ association.  In other cases, the amount owed to the homeowners’ association seems immaterial compared with the monthly mortgage payment(s), so the homeowner does not expect the association to proceed with foreclosure.  Regardless, the homeowners’ association has the right to, and often will, foreclose for what might seem like small dollar amounts.  There have been many cases when the attorney’s fee associated with the foreclosure is more than the homeowners’ assessment amount.  The key is to never ignore the letters from the homeowners’ association; otherwise, you may discover you no longer own your home or lot.  Filing Chapter 13 bankruptcy can stop foreclosure proceedings, so you may want to see if this is an option if you find the homeowners’ association foreclosing on your property.

Can a Second Mortgage Company Foreclose on My Home?

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Have you ever had those times when you were running short of cash?  There was that unexpected car repair or the kids’ summer camp deposit you didn’t have in the budget.  You knew something had to give that month but you weren’t sure what!  When you considered the options of what you could do without or simply not pay – food, gas, car payment, mortgage – you decided you would not pay your second mortgage.  You have missed a couple of payments on the second mortgage in the past and they have never said anything, so you should be fine.  What can they do anyway?

Foreclosure Sign in Front of House

You might be surprised to hear that your second mortgage, Home Equity Line of Credit (HELOC) or third mortgage, if you have one, can foreclose on your property.  Unfortunately, many people have been led to believe that is not possible or that it is not legal.  Do not be fooled.  No different than your first mortgage, your second/third mortgage or HELOC has a lien on your home.  When you obtained the second/third mortgage loan or HELOC you singed a deed of trust.  That deed of trust provides them a lien on your home and gives them the option of foreclosing on your home if you fall behind on the payments.

In most cases, the second/third mortgage company or HELOC will allow you to get further behind on your mortgage payments before starting the foreclosure process.  They will also work with you for a longer period of time before foreclosing, since they know they will be required to pay the balance of the first mortgage loan before they receive any money from the foreclosure.  Sometimes the delay in the foreclosure process by the second/third mortgage company or HELOC can lull you into a false sense of security.  Unfortunately, when they start the foreclosure process you may be so far behind on the mortgage payments with them that you have no way of catching up.  At that point, you may want to consider filing a Chapter 13 bankruptcy to save your home.

Can I Get a New Apartment Lease During Bankruptcy?

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You sure can! It may be a bit more difficult to find a place that will rent to you than it otherwise would be, but be patient. Depending on the rental agency, you may be required to pay a higher security deposit or even be required to have a co-signer. It really depends on the rental agency.

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What Is A Short-Sale?

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[youtube]http://www.youtube.com/watch?v=0R3ToH3saqA&feature=youtu.be[/youtube]

If you are behind on your house payments and have decided you no longer wish to keep the house, you may be looking at your options including a short-sale, deed in lieu of foreclosure and bankruptcy.  For this blog, we will specifically look at the short-sale.  A short-sale occurs when real property (house, land, etc.) is sold to a third-party for an amount less than what is owed on the property.  The short-sale is a way of transferring the property out of the homeowner’s name, but it does not necessarily eliminate the homeowner’s responsibility to pay the balance on the loan, known as the deficiency balance, after the sale.   As a result, the homeowner may be making payments on a house he no longer owns.  The short-sale will have a negative impact on the homeowners’ credit, since it will show the house was sold for an amount less than what was owed on the property, however, it will not be considered as negatively as the foreclosure.

 

It is best to illustrate what can occur in a short-sale with examples.  The examples have been simplified and do not reflect any real estate broker fees or other real estate closing costs and fees.  These examples also assume the house is the homeowners’ primary residence.

Example One

Young Family Sitting in Front of House on Steps

There is a $150,000 mortgage loan owed on the house, but in today’s market the house will only sell for $130,000.  You may approach the mortgage company to determine if they would accept $130,000 short-sale for the property.  In some cases, this may be acceptable to the mortgage company, since they would not be required to go through expensive foreclosure process.  If there is only one mortgage loan, the short-sale can be a viable option.  However, keep in mind that although the mortgage company agrees to the reduced amount so the house may be sold, it does not eliminate their right to pursue the homeowner for the deficiency balance on the loan, in this example $20,000.

$130,000 Offer on the Property

$150,000 Mortgage Lien

($ 20,000)Deficiency Balance

Example Two

There is a first mortgage for $125,000, Home Equity Line of Credit (HELOC) for $30,000 and a Homeowners’ Association Lien of $1,000 or a total of $156,000 owed on the property.  Consistent with Example One, the offer on the house is for $130,000.  In order to proceed with the short-sale, the homeowners must get all three lienholders – first mortgage, HELOC and Homeowners’ Association – to agree to accept the $130,000 offer.  Since the first mortgage will most likely insist on being paid in full, it is unlikely they will object to the $130,000 offer.  On the other hand, the HELOC and Homeowners’ Association must both agree to share the remaining $5,000 and agree to release the liens on the property before the short-sale can occur.  Also, just because the HELOC might agree to accept the short-sale, it does not preclude them from pursuing collection activities against the homeowners for the balance owed on the lien.

$130,000 Offer on the Property

$125,000 First Mortgage Lien

$  30,000 HELOC Lien

$    1,000 Homeowners’ Association Lien

($26,000)Deficiency Balance

As mentioned, it was assumed the house being sold in the two examples was the homeowners’ primary residence.  As a result, there is no tax implication against the homeowners, since The Mortgage Forgiveness Debt Relief Act of 2007 allows the homeowners to exclude the deficiency balance, also known as “forgiven debt”, on their primary residence.  On the other hand, if the property being sold is an investment property or any other property that was not the homeowners’ primary residence, the homeowners can be taxed on the deficiency balance or forgiven debt, since it is treated as income for tax purposes.

The short-sale is a viable option for many homeowners, however, it is important to be fully informed of the impact it may have on the homeowners’ financial position in advance of completing the sale.  Request the mortgage company or mortgage companies sign a waiver stating they will not pursue a deficiency balance on the property.  In many cases, the mortgage company will not agree to sign a waiver relinquishing their right to pursue collection activities, but it does not hurt to make a request.  In addition, be prepared to make payments on the deficiency balance after the short-sale or consider filing bankruptcy to eliminate the deficiency balance and other debts.

Why You Might Need To Do A Quitclaim Deed Or Deed in Lieu of Foreclosure Even After Filing Bankruptcy

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Whether or not someone who files bankruptcy also needs to do a quitclaim deed or deed in lieu of foreclosure is a question that many bankruptcy attorneys and clients are asking themselves these days. A few years ago, most banks and mortgage companies (we will call them banks for this blog) foreclosed on a property – house or land – within three to four months of the bankruptcy filing. At the foreclosure sale, the bank would pay the property taxes on the house as well as any homeowner association liens on the property. For many people, that is now considered the “good ole’ days”.

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Mortgage Companies Are Taking A Long Time to Foreclose, Isn’t That A Good Thing for Me?

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As discussed in a previous blog post, it is taking mortgage companies an extraordinary period of time to foreclose on properties these days.  Unfortunately, the delay in the foreclose process seems to be a “double-edged sword” depending on the homeowners’ goals.

Mortgage Company Foreclosing on House

In some cases, it is a benefit to the homeowners, since they may be able to live in their home for a year or more before the foreclosure is completed.  This delay allows the family to stay in “their” home and allows their children to finish the school year in a familiar setting with friends and teachers they adore.  In other cases, it is purely a financial decision.  The delay provides time for the family to save money, since they are not paying the mortgage loan on the house or rent on another property.  When the day comes to move out of the home, the family has the funds needed for moving costs and for the security deposit and rent on the new apartment or house.

On the other hand, the family down the street has made the decision to move on with their lives and have already moved out of the house.  The house represents a negative time in their lives and they want a fresh start in new surroundings.  In other cases, a member of the family has accepted a new job in another state, so they have no option but to move.  These homeowners want the mortgage company to foreclose as soon as possible so this chapter of their lives can be closed.  The family has moved on, unfortunately the house is still legally their responsibility.  These families receive stack after stack of letters from the mortgage company offering workout plans and other alternatives to foreclosure.  On top of that, the homeowners association (HOA) is sending threatening letters regarding tall grass growing in the law, mosquitoes in the swimming pool, and delinquent assessments, dues and fees.  The HOA is threatening to file a lawsuit against the homeowners if they do not pay the debt.  Pay a debt to the HOA for a house they do not live in?  Yes, the HOA assessments, dues and fees are still the homeowners’ financial responsibility until the property is no longer in their names, so the HOA debt must be paid.  As the old saying goes, these families can’t get the “monkey, aka house, off their backs”!

As a result, the delay in foreclosing on a house can be a good or bad thing depending on the homeowners’ goals.  As the homeowners, you can ask the mortgage company to expedite the foreclosure sale but often that is unsuccessful.  You can also look at signing a deed in lieu of foreclose or possibly quit claiming the property to the mortgage company.  These options will be covered in a later blog.

Why Is It Taking Mortgage Companies So Long to Foreclose on Houses?

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This is a question that many people are asking these days, why is it taking the mortgage companies so long to foreclose?  As bankruptcy lawyers we deal a lot with people who are trying to save their homes as they enter the foreclosure process. So knowing how long it takes until a home enters into the foreclosure process is important for many of our clients. There are several reasons for the delay in foreclosures.

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Needless to say, the slow-down in the economy has resulted in the loss of numerous jobs throughout the country.  For those lucky enough to keep their job, deep pay cuts have often occurred.  Add predatory lending practices from a few years ago and it all spells disaster for countless Americans and the lending institutions or mortgage companies.

Unfortunately, many Americans found they could no longer afford the American dream of a home.  With no way to make their mortgage payments, many people began defaulting on their mortgage loans and lending institutions began the process of foreclosing on many homes.  As the economy has continued to suffer, the sheer number of foreclosures has increased to a point that mortgage companies are simply overwhelmed by the volume.

As you may have read or heard in the media, mortgage companies have been heavily scrutinized regarding their foreclosure practices over the past few years.  The practice referred to as “robo signings”, where mortgage company officials signed off on foreclosure proceedings without fully investigating the accuracy of the documents they signed, has been investigated by federal regulators as well as state attorney general’s from all 50 states.  In several cases, bank officials admitted to signing foreclosure documents without reviewing them or verifying their accuracy.  Although this practice is not condoned, most of us understand how this may have happened.  The officials signing the documents may have believed their signature was merely a formality, and that the documents had already been verified for accuracy before reaching their desk.  So with a pen in hand, and a huge stack of foreclosures on their desk, the robo-signing began.

The investigation into robo-signing foreclosures disclosed many disturbing scenarios.  There were cases where homeowners were actually not behind on their mortgage payments but were facing foreclosure due to errors in paperwork.  In other cases, the homeowners were in the process of or had recently completed loan modifications with the mortgage companies while on a parallel path to foreclosure.  Needless to say these practices outranged many people.  The outcry resulted in the government’s investigation into the foreclosure process and then a self-imposed moratorium by many mortgage companies.

If you are like most homeowners, your mortgage company has changed at least once since you obtained your loan.  In many cases, the loan has changed hands two, three and even four times.  As a result, paperwork has often been misplaced or simply lost during the process.  These issues may delay the foreclosure process, since the legal documents needed to complete the foreclosure cannot be located.

As a result of these issues and others, most mortgage companies and lending institutions are completely overwhelmed with the sheer volume of foreclosure files.  As a result, it is taking some mortgage companies a year or more to foreclose on a home.  Obviously the timeframe varies, so there is no guarantee it will take the mortgage company that long to foreclose on your home!

Am I Responsible for the Loan On My Car If I Voluntarily Turn it In?

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You will still be responsible for the loan or debt on your vehicle even if you voluntarily turn it in. If you have a vehicle that you cannot make payments on, you have the choice of voluntarily surrendering the car or you can let the creditor repossess it. What many people do not know is voluntarily surrendering the vehicle is still considered a reposession on your credit report, a voluntary reposession.

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