By Deborah Goonan, Independent American Communities
Homeowners of property in association-governed communities should read the following article, and others like it, even though the intended audience is mortgage lenders.
Because savvy consumers should understand the Big Picture, and how all parties in a dispute over your property are affected.
The following article covers the issues of HOA foreclosure (especially in nonjudicial states), excessive late fees and attorney fees, special assessments, and priority liens with the potential to wipe out first mortgages.
It serves as a stunning admission that the HOA industry regularly engages in unethical, opportunistic, and even illegal actions, depriving both property owners and mortgage lenders of their rights and financial interests.
However, banks and mortgage servicers tend to be in a better position to protect their rights. They can afford to pay for legal assistance or even absorb the occasional loss.
Many HOA property owners, on the other hand, are merely struggling to survive a financial crisis and hold onto their homes.
Who protects the most vulnerable consumers? And at what cost to consumers and the public interest?
Should mortgage lenders and servicers have greater access to justice than individual home owners?
Are HOAs Taking Advantage of Mortgage Servicers?
About the author: Brian Liebo is the Managing Partner of Minnesota Mortgage Default Services Law firm, Usset, Weingarden & Liebo PLLP and is an MSBA Board Certified Real Property Specialist.
About Author: Kevin Dobie
Kevin Dobie is a Partner and handles litigation and other matters for mortgage servicers at the firm.
While Homeowner Association (HOA) liens for unpaid assessments typically have priority over second mortgages and other junior liens (because the HOA liens may “relate back to” the HOAs’ previously-recorded declarations), first mortgages receive special treatment in various states, such as Minnesota. Despite that special treatment, HOAs often demand payment of substantial bills by lenders foreclosing first mortgages. In addition to the regular monthly dues, the HOA bills may come riddled with line items for special assessments, attorneys’ fees, late charges, interest, and more that may not be the responsibility of the lender to pay. When the bills threaten to delay sale closings, lenders must quickly decide whether to pay the bills or delay matters, potentially losing sales, to challenge the HOA’s invoices.
As an example, Minnesota law generally provides a clear outline of what charges must be paid by foreclosing lenders. The foreclosing lender for a first mortgage is only required to initially pay the “unpaid assessments for common expenses levied which ‘became due,’ without acceleration, during the six months immediately preceding the end of the owner’s period of redemption.” The lender is not responsible for late charges and attorneys’ fees assessed during or prior to this six-month look-back period, because the Minnesota HOA statute specifically omits these amounts in the list of allowed charges.
Unfortunately, unscrupulous or ill-informed HOAs may add all of the unpaid association dues, late charges, and attorneys’ fees to bills regardless of their timing. Often, these unlawful charges are paid by lenders who are too busy to challenge every line item. When an HOA bill looks suspect, a lender should determine what assessments are legally allowable before making payment. It may be more cost effective for a lender to hire an attorney for an invoice review and challenge, than to repeatedly pay substantial sums that are avoidable.