How loan providers can avoid HOA foreclosure from claiming a property
A recent report issued by Bloomberg News claims that about $1 billion in unresolved back taxes is owed to homeowners association (HOAs) across the country.
It isn’t hard to understand why the HOAs are angry. With a consistent loss of money on foreclosed properties, many are finding it hard to stay alive and need reparation to continue in the business.
Homeowners and lenders who are searching for Arizona foreclosure help often have questions regarding HOAs, including what their role is in the housing market, their locations, and who belongs to which one. Luckily, those questions can easily be answered with a fantastic new database resource.
The most comprehensive HOA database in the nation
Sperlonga Data & Analytics, based in Arlington, Va., has compiled a database of more than two-thirds of the 350,000 HOAs that exist in the United States. The company, a branch of the real estate asset firm MMREM, has put together this comprehensive database as a way to combat the major problems that arise for investors during important transactions.
Brent Stokes, a senior vice president of Sperlonga, said that the mortgage industry, for the longest time, didn’t understand the need to have every HOA, associated property, or borrower’s payment history on file. In fact, this thinking goes back all the way to the Great Depression and didn’t change until short sales and REO sales, as a way to avoid foreclosure, were becoming threatened by delinquent HOA obligations.
These obligations, as Stokes notes, are simply a way for HOAs to get back what has long been owed to them.
The root of these losses and the HOA foreclosure solution
The biggest problem for HOAs has been recurrent since the collapse of the housing market nearly five years ago. Millions of homeowners, especially in condo and gated communities, who are in-need of Arizona foreclosure help, have walked away from their mortgages, resulting in a substantial amount of debt owed to the HOAs. To keep a high level of quality and maintenance in associated properties, HOAs rely on this debt being paid. Most of the time, however, they are left with empty properties and a severe financial loss.
The empty properties have also been a problem for the banks, which often refuse to take action on them. Squatters will inhabit the home, and in many cases, HOAs will be forced into bankruptcy because of the bank’s waiting game. In an attempt to fight back, HOAs have taken legal action, by either suing the banks or earning first-lien positions over the abandoned homes, which allows them to sell the home and keep the profit without any payment to the lender.
Although lenders do not want to see this happen, as it will result in a lost investment, in most cases, the foreclosed properties are not handled directly by the lenders but by third-party services that are unaware of an HOA problem and unknowingly give up a property. Government lenders such as Fannie Mae and Freddie Mac are common victims to lost properties and have recently issued conformed guidelines on the matter.
Mentioned in these guidelines is the need to remain in the first-lien position over a property and the requirement of servicers to clear all liens for HOA dues.
The necessity of the guidelines became apparent when lender JPMorgan Chase went 19 months without paying HOA fees on an REO it owned, thus allowing the HOA to take control of the property, foreclose it, and eliminate Chase’s investment.
Fannie Mae and the U.S. Department of Housing and Urban Development are now paying closer to attention to properties in order to not lose the first-lien position, and are issuing penalties to servicers who let a property slip into the hands of the HOA.
Last-minute HOA obligations have proven to be the biggest problem for investors who were faced with floundering transactions and substantial losses as an aftermath. CEO of MMREM Max Martin supported this theory with his own findings of HOA claims, including new fees and exaggerated amounts, emerging out of the woodwork just in time to thwart a pending transaction.
While investigating this issue, Martin was surprised to learn that no HOA database existed. He took matters into his own hands and, with the Sperlonga sector, created one.
The database does the trick
Investors and servicers have gotten great use out of the database. With it, as Stokes points out, investors can uncover potentially destructive HOA obligations, while servicers can find out exactly how late borrowers are on their HOA payments and decide whether an HOA foreclosure may be looming in the near future.
It allows servicers who are completing short sales, loan modifications or other transactions to know far in advance the obligations they will be presented with and avoid potential problems and setbacks that could occur.
At the same time, the HOAs can also use the database as a resource when in a similar situation. If a borrower or lender fails to abide by HOA obligations and pay the associated amounts, the HOA can quickly search for contact information.
The future of HOA obligation
This newly-formed database is just the beginning of what’s to come. The Community Associations Institute (CAI), a Falls Church, Va.-based trade group, estimates that 80 percent of every newly constructed property will belong to an HOA.
Currently, about 60 million people reside in HOA-associated residencies. Nearly 25 million addresses, or one in every 10 homes, are included in the 350,000 HOAs in the United States.
Stokes believes that the ability to pay an HOA obligation will eventually become a sign of credit, and may be worked into your consumer credit score just as easily as the ability to pay the phone bill is. Lenders will use your HOA payment history as an indication of whether or not you can handle the risk affiliated with lending.