Hoping that the brain power of the masses can assist in providing me with some clarity.
We have been going through the process of doing a short sale on a ski condo in Colorado and arrived all the way to the closing table to discover that the HOA had not accepted the short payment that the seller's agent had indicated and as such was demanding that the short sale be re-approved with the HOA getting more of what they are due or else they will continue with the foreclosure process.
The unit has both a primary and a HELOC on it and then a lien from the HOA. I can't seem to find any resources that help me understand whether the HOA steps into position after the primary mortgage or whether the super lien (6 months of assessments ahead of all other mortgages) will only get the HOA their 6 months of assessments and then the primary mortgage and HELOC will get everything else. At the purchase price, the HELOC is not getting paid back in full and whatever the HOA gets is taken out of that amount. But if the HOA is second in line after the primary loan then HOA could get paid back almost all of what they are owed.
What I'm trying to figure out is whether the HOA is pushing towards foreclosure but would only actually be able to recoup 6 months of assessments. In which case the HOA should really take the current short sale deal as they are getting 18 months of assessments. Otherwise we're out another 30 days to get the short sale approval.
Thanks for any insight you all can provide!
Why seller's agent thought HOA would agree to take a big haircut here is a mystery.
Hey Tim, HOA's like to play hardball. Sounds like your logic is correct. Other lien holders don't always act with logic though. If the HOA can recoup 6 months assessments due to CO super lien status at a foreclosure auction, if there are leftover proceeds they would go the 1st position and 2nd position respectively. It all depends what the winning bid is at auction. I recommend trying to get all parties to try to chip in more money towards the HOA. It's common in short sales for HOA's to pull maneuvers like this unfortunately.
In Colorado, the HOA will have multiple positions. Their Superlien (6 months of dues) comes in front of all other liens, except maybe property taxes - can't remember the specifics on that.
Then comes the first mortgage, then come all the junior liens in the order that they were placed. So if the HELOC came next, then that's the order it goes in.
So the HOA is usually in 1st position AND 4th position.
If there is enough equity in the condo, the HOA can and will push through their foreclosure, getting back all past due balances and costs. As both first in line and (usually) last in line, they are in a unique position to gain possession of this property.
If you do not offer them the full balance of what they are owed, then they have no incentive to accept a short sale if they are the ones who are initiating foreclosure. At auction, if there is not enough to cover all liens, they will just bid it up to the point where all others stop bidding. If they have sufficient cash to then cover the prior liens, they can utilize their right to redeem and take possession and title.
In some cases, they don't have to pay out the other liens - they just take the title Subject To the mortgages already in place. In this way, they can then rent out the property to satisfy what is owed to them, fix it, sell it or essentially do whatever they like with it.
Bear in mind that in this situation, the seller has probably jerked the HOA around sufficiently to the point where they are no longer willing to play ball, negotiate or otherwise help you or the seller out. HOA board members are generally unable to separate the "insult" of having to carry their neighbor financially from pure business decisions.
I think your best bet is to work your deal so that the HOA is paid off in full. You may need to purchase the lien from them (not satisfy the balance - you're not the owner yet, so you can't just pay off the balance with any kind of assurance that it gives you any rights). If you purchase the lien from them at full balance, they will go away. You can then work through the sale and, if you're successful, forgive the lien on what essentially becomes yourself. If you don't work through the sale, you can then foreclose on the lien yourself and gain possession that way.
Unfortunately, you need Accurate numbers for the HOA up front. I Always advised buyers to count on having to chip something extra in, above the purchase price, in situations like these, and adjust their offer accordingly. Rarely does it work out where a junior mtg holder And an HOA agree to what the first is willing give them.
Thanks for the responses and clarifying the various positions of the lien holders. Our first time jumping into the foray of short sale/foreclosure/pre-foreclosure purchase and it's definitely been a learning experience, and not in all the best ways.
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