Who Pays Liens After Foreclosure?

chisueAugust 18, 2008

I posted on the "Home Finances" forum, too.

An 'expert' writing in the Chicago Tribune Sunday criticized a condo board for allowing an owner to run up $22,000 in unpaid association fees before the condo went into foreclosure. (HOW did he think the association could force the owner to pay?)

He said that if the condo owner sold before foreclosure the lien for fees would have to be paid before the title could convey. (I'm OK with that.)

Then he said that the lien would likely NOT be paid after the condo was sold by the mortgage holder, the lien being a *secondary* claim and the property likely selling for less than the outstanding mortgage. (Huh? How does the title convey with outstanding liens?)

In answer to my "Finances" post, a forum member gave me a link that seems to say the mortgage holder must pay off the liens (as I'd presumed before reading the Trib 'expert). BUT, that attorney raises another concern. He is writing from the perspective of a bankrupt owner and says the owner is not liable for payment of association fees due between the time the condo is taken by the mortgage holder and the time it sells. (So...who IS?)

My concern stems from ownership in a 320-unit condo in Hawaii. There has been one forclosure -- that brought less than half the market value. Currently 10% of the units are listed for sale. I want to know how the association is protected. Responses from the treasurer were along the lines of, "We don't have those kinds of problems." I feel that they may not have had them in the past, but this is a different climate.

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Chisue, at least in CA, most secondary liens (excluding taxes and the IRS) are wiped out at foreclosure. The logic here is that the lien is incurred after the financing, so holders are in a subordinate position to the lender. The association can pursue a judgement against the owner for the balance, but it can be difficult to collect, particularly if the owner has no other assets in the same state.

The lender will be responsible for HOA dues and assessments from the time it takes possession until it resells the property, but not anything that accrued prior to the foreclosure.

    Bookmark   August 18, 2008 at 11:44AM
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I relaly don't know about condo liens. But I have heard that foreclosed homes generally don't pay tax liens.

I sold my mother's LA home a few years ago. The buyers didn't pay any taxes and the home was forclosed upon. I believe that in that case, the taxes didn't get paid.

I'll be interested in the answer to this question.

    Bookmark   August 18, 2008 at 11:44AM
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kelpmermaid -- Thanks. That explains it all. Except...how did the 'expert' think the association could have acted differently? I'm assuming they put a lien on the condo in question and served the owner with notices each month.

    Bookmark   August 18, 2008 at 12:46PM
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Theoretically, the association could enforce its lien by foreclosing on the owner. You've probably read one of those stories about the owner who loses his home over some relatively small sum owed to the HOA. Usually, though, if the owner isn't paying the dues and/or assessments, there are other things that aren't being paid as well such as mortgage payments and property taxes, so it isn't that easy.

    Bookmark   August 18, 2008 at 1:21PM
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Then it's as I thought, there's nothing *practical* an association can do about missed dues. In the case where $22,0000 was owed ($900/month payments), it would probably have cost the association more to sue than they could hope to recover.

I'm still a bit puzzled by the foreclosure at our condo complex because it sold for so little: $350K when comps were selling for over $700K.

    Bookmark   August 18, 2008 at 5:11PM
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