Monday, December 13, 2010

HOAs in California Have Challenges to Collect on Assessments When Owner Members Default

CA homeowner associations 

Especially during these times of many foreclosures, homeowner association boards in California are having lots of trouble collecting on unpaid assessments against member property owners.  HOA assessments

If the HOA files and records a lien for unpaid assessments, and if that lien isn't cured with payment by owners, the HOA would have a right to file and record its lien.  

HOA lien rightsHowever, if there was an unpaid note secured by first deed of trust, nobody would want to buy the HOA claim at the trustee sale.  With no such buyer, title to the unit would transfer to the HOA after it forecloses on the lien.

But wait.  If the HOA takes the property at trustee sale after foreclosure on its own lien, that wipes out its prior lien claim. 

And if the lender forecloses on the first mortgage, that would that wipe out the association's title interest and right to be paid for assessments.HOA claim for payment can be lost

HOA boards must be careful with this.   If the HOA forecloses on its own lien claim, title transfers to the association (subject to the delinquent owner's 90-day redemption rights).  After title transfers, the association's lien is extinguished because it now owns the property. 

The HOA collection rights against prior owners would also be extinguished per the California single action rule.  The HOA board in that situation could not take further action against the delinquent owners except to evict them from the unit after the redemption period ends.

HOA rights after foreclosureIf at the California trustee's sale, the HOA takes ownership of the unit subject to a mortgage, and if the unit has no equity, there is no economic value to the HOA in making payments to the lender. 

The lender would probably foreclose.  The HOA board would until then be property owner and could put a renter in the unit to help offset for lost delinquent assessments.  After the lender forecloses on its deed of trust, title would transfer to the lender, which would then be obligated to pay HOA assessments during time of its ownership.

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Source: Davis-Sterling.com and Adams Kessler. This article is for information only about HOAs in California and is not the providing of tax or legal services.  If you have questions about HOA rights on its claim for unpaid assessments or lien, you should contact an attorney. 

Harrison K. Long - Business Solutions and Advisory- REALTOR® and broker associate, Coldwell Banker Residential Brokerage - 949-854-7747 (phone) - ExploreProperties@gmail.com (email) - CA DRE 01410855 - www.LiveAtNewportBeach.com  -  www.OCPropertyNews.com  -  www.CostaMesaLive.com  -  www.Irvine-homevalues.com  - www.NewportCoastLive.com   - www.CoastLivinghomes.com  - www.OCHomeValueGuide.comwww.LiveAtIrvine.com  - www.ExploreOCHomes.com  -  www.LiveAtOrangeCounty.com  

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