Want to know how to kill your chances of a successful short sale? Stop paying your homeowner association dues.
HOA delinquencies can quickly balloon with fines and legal fees. And few lienholders on a home can be as strident and hardline as an HOA.
It’s among the reasons that many short sales fail. The result can lead to foreclosure for a homeowner attempting to preserve their future ability to buy a home.
In a short sale, banks often refuse to allow delinquent HOA dues to be paid from the proceeds of the sale. Since most HOAs won’t discount their payoffs, that means either a seller or buyer will have to come out of pocket to make up the difference. We’ve seen HOA fees in excess of $10,000, buoyed by excessive legal fees and outrageous fines.
HOAs across the country are beginning to see short sales as a great way to recover unpaid fees, especially with low housing inventory.
Some are even postponing their own foreclosure efforts to encourage delinquent homeowners to try to short sale a home, hoping for a speedier resolution.
But a big HOA payoff can still endanger a valid short effort for a homeowner. And every dollar that goes to an unpaid HOA bill is a dollar that doesn’t go toward the unpaid mortgage. For homeowners who may have to pay income taxes on the bank’s loss, that could mean a bigger tax bill for a distressed homeowner.
WHAT’S THE BIG DEAL?
For homeowners, a short sale fends off a financially devastating foreclosure, limits damage to credit, and puts them back in the housing market more quickly as an able buyer – before home values again shoot through the roof.
More importantly, a short sale allows a homeowner to exit their house on their own terms, with dignity intact.
Banks prefer short sales because they net more money than through a foreclosure. It takes time and money to seize, repair, maintain, market and resell a property. And as many as half of loan modifications redefault within the first year, later turning into foreclosures and short sales.
But when you throw delinquent HOA bills into the mix, it can skew the numbers, perhaps even making foreclosure a better financial alternative than a short sale. And that’s not good for a homeowner.
WHAT IF YOU’RE ALREADY BEHIND?
For homeowners who have already missed HOA payments and can’t make up the back payments, there are solutions.
Depending on the amount of the unpaid bill, an experienced short sale agent will know which of the three main strategies to employ to handle the issue. (By “experienced,” we mean they have closed at least 50 short sales and have a success ratio of at least 90 percent.)
Anything less than those figures, and you should keep interviewing for a real expert, not just an agent who has paid for a weekend class and gotten a “short sale specialist” designation.
Of course, the best solution is to keep paying your HOA dues, even if you are unable to keep paying your mortgage.
Are you behind on your payments now? You need to know what could happen next. Call us today at 951-778-7900 to set up a 10-minute consultation.
(Brian Bean is a Default Advocate and Broker/Owner of Dream Big Real Estate in Riverside, Calif. He can be reached directly at Brian@DreamBigRealEstate.com or at 951-778-9700, http://www.dreambigrealestate.com or http://www.CaliforniaShortSaleDecision.com.)
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