Pitfalls with Boston Short Sales and Home Owner Association Fees

If short selling a home in this economy wasn’t bad enough, the added burden of a HOA fee can complicate things even more. The HOA fee is often overlooked when considering a short sale.

If this fee isn’t taken into consideration at the start of the process things can get very sticky and unravel days before closing. In order to make sure the status of the HOA fee will not harm the short sale process the association should be contacted. Think of the HOA as a ‘third lien’ on the property.

After talking with many different Home Owner Associations the process of how they handle short sales varies. For example, one complication that can arise days before the close of escrow is that delinquent HOA fees can be sold to collection agencies. Some HOAs only manage, service, regulate and process payments.

When it comes to delinquent fees policies substantially vary. Some HOAs have taken it upon themselves to create in-house delinquent fee collection departments. In this case, negotiating with them will be significantly easier then an outside agency.

Why? This is because outside agencies are often located across the united states. Most of these agencies handle more then just delinquent HOA fees. The departments are often very busy and slow to respond to payoff requests. The payoff request might need to go through several levels of management before a decision is made.

Things can get even more complicated if the account is referred to one of these agencies and then the home owner charges the account off. Not only will this slow the whole process, but might actually cause the charge off to be reported to credit reporting agencies.

Even when the HOA collection department is handled in-house complications can arise. These agencies are businesses looking to make money. They understand that if the short sale is not approved by them it could kill the deal.

Thus, they have a certain degree of clout when negotiating a short sale. Think of this like a ‘two-edge sword’, HOA approval is necessary, but if the home goes into foreclosure they might get absolutely nothing. They really want to cooperate with the distressed home sale, but have figured out that no matter if the short sale gets approved or not, they can still get money.

They do this, by requiring the home owner to pay a certain portion of the delinquent fees before responding to short sale requests. Again, this is because if the short sale doesn’t get approved and goes into foreclosure the HOA would get nothing. HOA fees are notoriously overlooked when considering the whole scheme of the short sale. If the HOA doesn’t sign off on the payoff then money will have to come from someone (i.e. buyer, seller, 1st lien holder, 2nd lien holder, etc…). In this respect they are very much like home mortgage.

Of course, the HOAs are not just ‘mortgage hungry money grubbers’ they understand that if the HOA fee is not being paid, then the HOA is loosing money. For this reason they want to get someone who can pay the fee into the property quickly. Because the delinquent fees are often minimal seeking a deficiency judgement after the sell is often not profitable. Before starting a short sale it’s a good idea to get details on the HOAs policies.

Do they transfer the delinquent fees to an outside agency? Is there an amount required to get a short sale demand request answered? Can the home owner stay current or prevent transfer if a portion of the fee is paid every month? Can the buyer ‘pre-pay’ the fee during the escrow period. What are the HOAs pay off policy? Is it a percentage of the sales price or amount charged off? Will the debt be forgiven or will the HOA seek a deficiency judgement.

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