Do I owe delinquent condo or HOA fees if I buy a bank owned or foreclosed property?
That’s a great question. In Florida the short answer is “no.”
When a home is foreclosed on in Florida, the proceeds from the foreclosure sale go first to pay off any delinquent property taxes* (see update below), then the lender who holds the first mortgage, then any second mortgages, and then whatever’s left goes to pay delinquent HOA or condo dues, etc., in the order which they were filed.
In today’s market most of the homes going through foreclosure are worth less than what they were originally purchased for, so after the taxes are cleared the first lender gets paid, but not as much as they are owed. And everybody else, including any second (also called junior) mortgage, is left holding an empty bag. Foreclosure wipes out the old leins, including any past due HOA and condo fees that didn’t get paid. I’ve been told that even an IRS lein gets wiped out if it isn’t filed on time or correctly in these cases.
The HOA or condo community could theoretically go after the old owner for a delinquency judgment, but good luck. Even if they found the old owner they would probably end up spending legal fees in excess of the amount owed. Plus, even if they get to court the judge might be very reluctant to enforce condo dues on a former owner who’s already lost everything.
So what’s an association to do?
Well, some associations have been approaching the new owners and trying to get them to pay a past owner’s delinquency. You know, they’re using the schtick about being a “team player,” or, “don’t ruffle feathers in the community.”
As of this writing we have a call into an expert who would know for certain, but based on what we know right this minute, an association has no reason or right to approach a new owner about fees that have been since wiped out by foreclosure. In fact, if it were me that the association approached, my first inclination would be to contact an attorney and (to use a military term) “bomb them back to the stone age.” I could use some extra spending money, after all. But that’s just me.
Ok, I just finished talking to Stephen Collins at Land Title of America in St. Augustine and here’s what he told me. When a property is foreclosed on and it’s the bank that buys it back, after the delinquent property taxes are paid, by law they have to pay up to 12 months of delinquent association fees or 1% of the outstanding mortgage amount (whichever is less) for an HOA, or up to 6 months of delinquent association fees or 1% (whichever is less), including any attorney’s fees, before they can clear title. If it is NOT the bank that buys the home on the courthouse steps, then the buyer has to pay the entire amount of delinquent fees including attorney’s fees. OUCH!
But a condo or association cannot come back to a new owner and put a lein on them for someone else’s delinquent fees, especially if it’s the bank that forecloses, and then someone else buys it from the bank.