HOA Foreclosure

[159515951]

Update for those following along at home:

The HOA foreclosure did proceed and was finalized, and the house was auctioned earlier this year. Here's the kicker -- the 1st mortgage bank refuses to acknowledge that the home is no longer ours and not in our name, and is proceeding with foreclosure on a home we don't own. They continue to send us large filing documents, proofs of service, etc. Again, this home is not ours anymore!

Question: I assume I can just ignore these idiots at this point, correct? They claim to be certifying title searches, etc., but if that were true they'd notice pretty quickly that the home isn't ours anymore.

The more things change...

[justbroke]

Well, there is actually some discussion on whether first mortgage lien holders are protected in HOA foreclosures. I know that my HOA treats first lien holders as special. Additionally, Florida law preserves the first lienholder and tax lienholders priority when it comes to HOA foreclosures. In other words, the HOA lien is subordinate to any first or tax lien.

So, the bank may actually be correct. The first lienholder is entitled to foreclose. This lien was never removed by the HOA's junior (subordinate) lien.

Remember, the HOA foreclosure may give the HOA title, but it is still subject to the first lien (it's not a clean title, so to speak). Additionally, you are still technically liable for the mortgage (that first lien) -- if you discharged it in bankruptcy you aren't liable for the note (paying the note), but you are still on the lien. In order to foreclose upon the Mortgage Note (the first lien), the bank must foreclose and name all the parties that are subject to that note (being you and, when you're in an HOA, the HOA as well!).

Personally, I don't know why an HOA would foreclose if the property is underwater based on the first mortgage (first lien). I think it would just be vindictive since the HOA would hold title to an encumbered property. (Speculation is that they don't pay the mortgage, but just kinda force a first lienholder foreclosure.) Otherwise, the first lienholder would just foreclose. I'm sure there are all sorts of people out there thinking of a way to get a carve-out from an HOA foreclosure (by approaching the first lienholder on a short sale or some other deal). Under FLorida law, this could be a "good" thing for an HOA to force the first lienholder's hand and have the first lienholder foreclose! Under Florida law, the HOA would be entitled to receive 1% of the mortgage value or 12 months worth of HOA dues, whichever is less, from that mortgagee (first lineholder).

That's a mouth full!

Short answer, you can ignore it and let it proceed to the "real" foreclosure!

[159515951]

Thanks for the info, JB. There seems to be a lot of confusion, even among attorneys, regarding HOA foreclosure in Florida. In our case, the HOA foreclosed, but the home was sold at auction for significantly more than the HOA lien (and the HOA didn't win the auction). HOAs in Florida have superliens, and I think between that and our Chapter 13, the first mortgage holder might be out of luck. That's the only thing that makes sense -- otherwise, I can't understand why anyone would spend a lot of money on a foreclosure that they will eventually lose.

I think in this case, the bank is simply full of idiots will not acknowledge that we don't own the home anymore. The house isn't in our name, someone else is paying the taxes, etc. Why the bank is insisting on foreclosing on us in light of this is beyond me. I'd love to get a definitive answer on this, but haven't been able to find one over the past year or so.

[justbroke]

Florida law is very clear. The first lienholder is protected and superior to any HOA lien. While we talk about the HOA holding a "superlien", it is only that because it is a.) statutory, and b.) supersedes all liens (except the first and tax liens). This is why some crafty HOAs have foreclosed upon the HOA lien, and then went to court to do a reverse foreclosure to force the first lienholder (bank) to foreclose the first lien. This has worked, for HOAs, in some cases. In other cases, especially condominium associations, the HOA is able to just lease the property and collect rents! Typically rents far exceed what is owed and the HOA is in a better place in the long run... until the first lienholder decides to foreclose. (The first lienholder would eventually foreclose because the HOA is not going to be paying the Note (first mortgage) on the property.)

As I suggested in my prior post, there are "speculators" that will purchase at an HOA foreclosure, and even for more than the value. These highly skilled, one would hope, speculative purchasers will typically rent the place until the first lienholder forecloses (without paying the first lienholder a dime). They may also ask for a short sale with a carve-out of tens of thousands over what they paid for the title; think $10-$30,000. That's a quick way to make $10-$20K here and there, but it's highly speculative and choc-full of risk.

Definitive answer: You may not own the home, but you are on the lien. The current title is "clouded" because the titled issued to the HOA is not a "Warranty Deed". In order for the bank to get an unclouded (clean) title, they must foreclose. In order to foreclose, they must name all that are on the mortgage/lien which entitles them to foreclose. That just happens to be you. Trust me, this is the "legal" and correct manner in which to get a clean title (in Florida). The title company (and bank) does not want you coming back 20 years from now saying that you were never served so the title is still clouded!

[159515951]

Thanks JB. I'm confused, as your post is completely contrary to this:

http://www.nolo.com/legal-encyclopedia/homeowners-association-super-liens.html

What Happens When the HOA Forecloses its Super Lien?

If the HOA forecloses a super lien, not only does it collect its debt, it eliminates the first mortgage, as well as any other junior liens on the property. Consequently, when a lender is notified that a foreclosure has been initiated by the HOA for unpaid assessments in a super-lien state, in most cases, the lender pays off the super-lien amount to preserve its position as the first-lien holder and stop the foreclosure.

There have been instances of first mortgages being completely wiped out in an HOA super lien foreclosure when the mortgage holder neglects to pay off the super lien to halt the foreclosure. As a result, both Fannie Mae and HUD (the U.S. Department of Housing and Urban Development) have instructed mortgage servicers to proactively protect the priority of the mortgage lien and to clear all liens for delinquent HOA dues, rather than waiting until an HOA foreclosure starts, to keep this from happening in super lien states.

[justbroke]

http://www.nolo.com/legal-encycloped...per-liens.html
What Happens When the HOA Forecloses its Super Lien?

If the HOA forecloses a super lien, not only does it collect its debt, it eliminates the first mortgage, as well as any other junior liens on the property. Consequently, when a lender is notified that a foreclosure has been initiated by the HOA for unpaid assessments in a super-lien state, in most cases, the lender pays off the super-lien amount to preserve its position as the first-lien holder and stop the foreclosure.

There have been instances of first mortgages being completely wiped out in an HOA super lien foreclosure when the mortgage holder neglects to pay off the super lien to halt the foreclosure. As a result, both Fannie Mae and HUD (the U.S. Department of Housing and Urban Development) have instructed mortgage servicers to proactively protect the priority of the mortgage lien and to clear all liens for delinquent HOA dues, rather than waiting until an HOA foreclosure starts, to keep this from happening in super lien states.

Not in Florida. You must also look at your Covenants as well. They will typically spell out that first mortgages are protected.

I want to give you an exact example. I live in Florida and I am in an HOA. In my CC&Rs, it is very specifically stated.

The lien of assessments, including interest, late charges... and costs... provided for herein, shall be subordinate to the lien of any first mortgage on any Unit.

I'm pretty sure that is standard boilerplate and makes sense. Why would any first position mortgagor issue a Mortgage subject to the CC&Rs of an HOA, whereby the HOA could take the entire property for a mere missing assessment of as little as $360 on a $500K property? I suppose no one would issue mortgages in that HOA and then, no one could buy property there! It would be self-defeating. Otherwise, a very strong HOA, as mine is (!), would certainly like to supersede any lien and be able to sell a $500K or even $1.0M property, in my HOA, for $360 plus legal fees. If that were the case, I would be buying these properties like crazy myself.

So, in these Florida cases, the HOA could foreclose upon their lien which is inferior (subordinate) to the first (mortgage) lien. The first lienholder would still have a perfected and enforceable lien against the property and is entitled to foreclose upon the mortgage based on non-performance of the under the terms of the promissory note (no payments). The first lienholder would eventually foreclose the mortgage and first lien and the HOA would typically be paid for anything due after the foreclosure... so that the bank/lender can get a clean Warranty Deed.

(Florida is a super lien State, but the CC&Rs typically override the ability to superseded the first mortgage (lien). At least the 3 HOAs that I have been a member in Florida, all have the same subordination.)

I hope that helps.

[159515951]

Update: Learned that the bank is doing an "in rem" foreclosure, which is essentially against the property only and not me personally. I assume this is due to: 1) the Chapter 13; and 2) the home isn't in my name anymore, as the HOA foreclosed a year ago.

So this brings up the big question...will it still show up on my credit report?

[justbroke]

Update: Learned that the bank is doing an "in rem" foreclosure, which is essentially against the property only and not me personally. I assume this is due to: 1) the Chapter 13; and 2) the home isn't in my name anymore, as the HOA foreclosed a year ago.

They are doing this solely as an "in rem" (against the property), because of the Chapter 13. Had you not received a discharged in a bankruptcy proceeding, this would be "in personam" (personally).

The foreclosure is specifically because you are listed on the Promissory Note and they are foreclosing the Mortgage which incorporates the Promissory Note. I think you are still having some trouble with the difference between a foreclosure and ownership. The foreclosure "fore-closes" the mortgage. You still have a valid and enforceable mortgage with your lender! Many people believe that a bankruptcy discharge gets rid of your Promissory Note and your Mortgage. The discharge only removes your responsibility to pay the Note. The Mortgage is still wholly unaffected and enforceable.

Webster's dictionary defines a foreclosure as "a legal proceeding that bars or extinguishes a mortgagor's right of redeeming a mortgaged estate". The word "owner" or "title" is not used in that definition on purpose. I just wanted to be sure you understand exactly why the foreclosure lists you as a defendant. It will also list the HOA and any other subordinate lienholders as defendants. The HOA is not just listed because of their ownership specifically, but because most Covenants and State non-bankruptcy law requires that the HOA is a party and is served in a foreclosure.

So this brings up the big question...will it still show up on my credit report?

It is likely that this will not be reported on your credit (such as a public notation). At least, that was the case for my property that was surrendered in Bankruptcy.

[tobee43]

I dont know if i understand this situation at all when it comes to hoas, but this is what i am thinking?? maybe someone with a bit more experience can chime in here.

i am pretty sure that the liens (mtg) do not survive after the foreclosure(that is why they are foreclosing anyway, right? to clear title...). Meaning, now that the house has been sold, hoa fees paid from sale, any surplus goes to first mtg holder (not sure how hoa forecloses first?) and they are left with a deficit if the sale didnt produce enough to cover the mtg.

Because you surrendered, you are not liable for the deficit?

hoa liens are subordinate liens, they out live your BK. worse news florida is a deficiency state but your bk should cover that.

do not get confused by the wording of "surrender". that ONLY means you have allowed the creditor the right of redemption. they have a right to chose and do not have to take the house back, thus the HOA went after you only for a bit. usually fees and back dues the bank gets the rest.

[159515951]

They are doing this solely as an "in rem" (against the property), because of the Chapter 13. Had you not received a discharged in a bankruptcy proceeding, this would be "in personam" (personally).

...

It is likely that this will not be reported on your credit (such as a public notation). At least, that was the case for my property that was surrendered in Bankruptcy.

JB, thanks for your help with all of this. Great explanation, and it's finally starting to make sense to me.

[justbroke]

JB, thanks for your help with all of this. Great explanation, and it's finally starting to make sense to me.

I know that you were very concerned about all of this, but you are perfectly fine and everything is proceeding normally. In fact, your actual foreclosure may have been sped up by the HOA foreclosure. Many people, at least in Florida, have waited years to have their (bank) foreclosure completed.

I hope that you are enjoying and taking advantage of your fresh start.

[tobee43]

jb you are exactly correct. i hate to be the one that says this but i handle the foreclosures in our HOA. we sit second to the bank, however, in the meantime i have changed our bi-laws so we can increase fees and costs on the home owner so there is something left for us and in many cases the banks pays us, thats why i restructured the process. besides the fact the banks were taking years to move, this just speeds up their process or we, the HOA get the house. (we always work with all the owner prior to this point, we have even paid a few mortgages from our HOA fund to help people). so, its not that everyone is evil in this we just want all the vacant houses to begin to move again and this is working for our community.