How to approach HOA liens in a short sale
REALTORS, we are running into a lot of issues with HOA liens when negotiating a short sale. There are situations out of our control. Sometimes we may take on a listing and the homeowners have not made a payment in 12 months along with their mortgage payments and they are severely hardship stricken and they cannot come current or contribute to the payoff to get the deal closed. In that scenario, who do you suppose is going to be responsible for paying this? We first have to see if the lender or Debt Settlement Company is willing to contribute to the payoff. We can also try to negotiate with the HOA and or attorney's office they may have passed it to in order to see if we can get a principal reduction or lien release. Lastly, depending upon what was negotiated with the lender and HOA, the balance will most likely come from the buyer and or agents to close.
We are seeing HOA liens in the amounts of $30,000. Most of that are legal, administrative and maintenance fees that have been attached to the delinquent HOA dues. The idea is to catch it while it is in the delinquent stages before it gets passed off to an attorney's office and becomes an actual lien attached to the property. Another option after all of these previous steps I mentioned have been taken; is to get the balance down as much as possible and try to work it in to the offer if you can. Not a lot of buyers are willing to come out of pocket $30,000 for an HOA lien but working it into the offer may be an option. If this is the case you want to make sure you have a solid listing history on the property with comps to support whatever offer you send over with a letter of explanation in regards to the HOA balance. A lender is not going to pay that high of a balance either. If the lender is Bank of America, they most likely will not cover any of it. So we want to make sure that we are explaining to the lender our dilemma and why we have structured the offer the way we have. Put the ball in their court.
Here are some tips on things we can control:
1. Ask the homeowner if they are current. If they are not current find out the amount of the HOA and number of months they are behind to figure out an estimate of the balance owed. See if they are willing to come current or contribute to the payoff. Keep in mind that a short sale can take anywhere from 2-4 months plus and the amount owed will go up every month along with penalties and interest. If they can make a payment or contribute this will keep the delinquencies from turning into a lien attached to the property. Do not be afraid to ask the right questions. The homeowners need to understand what it is going to take to avoid foreclosure.
2. If the homeowner is current on the HOA; advise them to continue making payments if possible to avoid further delinquencies and the possibility of a lien being attached the property. Explain that this makes it difficult in a short sale transaction.
3. When you have a buyer's agent submit an offer, use a counter to set expectation with the buyer explaining that there may be fees a lender will not cover and the buyer will be responsible to contribute to those fees to close the deal. The idea is to keep agents from contributing money out of their commissions. I am sure you all can agree this is a frustation, but not a necessary one in my opinion if we are working effectively and efficiently and setting proper expectations.
HOA liens are becoming harder and harder to remedy at the end when we are trying to close. Doing our diligence up front will help structure the deal right the first time and save us from these pitfalls in the end and ensure a smoother transaction.
Quote: "Management is efficiency in climbing the ladder of success; leadership determines whether the ladder is leaning against the right wall."
- Stephen R. Covey
REALTORS, what is in your business plan this year? What are you doing to create a system that will allow you to build your short sale business? How often are you out there prospecting and how do you know if you are taking the listings that are going to be successful and not a waste of your time?