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How Does Association Foreclosure Differ From Typical Mortgage Foreclosure?

The upfront short answer is: not a whole lot.

A while ago I posed the question of what happens to homeowners or condominium fees in New York bankruptcy. This post is sort of a sequel. Many New Yorkers live in common-interest housing that charge either homeowner association (HOA) or condominium association (COA) fees. These fees can accrue if unpaid, and eventually the association can foreclose on the homeowner. Here are a few salient facts homeowners should know about.

The association can place a lien on a property, and that lien can include unpaid association dues, late fees, interest, attorney’s fees, and costs for the action. It’s possible the association may try to sneak in unrelated charges, so homeowners should scrutinize their bills.

The crucial difference between HOA or COA foreclosure, though, is lien priority. In most cases, homeowners in these communities do not own their properties free and clear of any mortgages, and thus if there are recorded first mortgages on their properties, those mortgages stay. There are two big ramifications from this. One, homeowners who have been patiently negotiating with their lenders to stay in their properties might suddenly find that they’ve lost all their progress. When senior lenders are indifferent to HOA or COA foreclosures, then their liens will remain on the properties, and they will seek repayment from the new owners. Typically, new homeowners will want to move in and to do so they must obtain new mortgages to satisfy senior lienholders.

The second point is that until the first liens are resold, foreclosed homeowners are still personally liable to their lenders. That can give lenders opportunities to seek deficiency judgments. Because these debtors no longer own the properties, they can discharge their debts for them as unsecured loans.

Here are a few remaining points. Aside from senior liens, a recorded HOA or COA lien will supersede other liens except for two: tax liens and junior mortgages held in part by state-government entities. Other liens are wiped out. As with senior lien foreclosures, there is no redemption period after the sale, so homeowners wishing to stay put will need to satisfy the lien amount to prevent the property from being auctioned. Finally, the statute of limitations for HOAs or COAs to enforce their liens is six years.

Why might an association foreclose ahead of a senior lender? Obviously it thinks it can install a new, dues-paying resident more quickly to recover its losses. Sometimes homeowners are current on their mortgages but not their HOA or COA fees, or it takes longer for senior lenders to foreclose on a defaulted mortgage than the association is willing to accommodate. In these cases, it’s sometimes to the homeowner’s advantage to actually be underwater on the property because it’s harder to sell absent a willingness to short-sell the property on the part of the senior lender.

If your HOA or COA has placed a lien on your property or you’re facing association foreclosure, talk to an experienced New York bankruptcy lawyer immediately. The lien is usually a prelude to a foreclosure, and the situation is just as serious as when the bank is doing it.

For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn NY foreclosure attorneys Bruce Weiner for a free initial consultation.

Rosenberg, Musso & Weiner, L.L.P
26 Court St # 2211
Brooklyn, NY 11242, USA

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