What Happens to Your Sale If You Don't Pay Your HOA Dues?

Many owners these days are having financial problems, and decide to stop making payments on both their mortgage and their homeowner association dues. They may later decide to sell as a short sale, do all their document submission to the lender, list their property, find an eligible buyer who is willing to wait, and look forward to opening escrow and getting it sold. And, common to many sellers, they stopped making payments several months prior, so now a significant dollar amount in delinquent HOA dues has built up--hundreds and even thousands of dollars are in arrears.

In California an HOA may initiate foreclosure on a property after 18 months of nonpayment (but then they take over all associated mortgage and other costs of that unit), but before that, an association after a few months of nonpayment may instruct its attorneys to file a lien. If a lien exists at the close of escrow, then it will raise the issue of getting it paid off prior to close, or delaying the close of escrow--and in a short sale, lenders may impose additional fees for not closing by the specified date. If the seller does not have the money to pay it off--this will include the dues, late fees and attorney fees--then perhaps the buyer would be willing to contribute, but if the buyer cannot or will not, then that particular escrow will not go forward. And if you have a Notice of Sale on your property already, the lender may no be willing to extend and wait for a new buyer--it just depends on the lender.

Another wrinkle for a closing is even if delinquent dues can be paid off at closing, the number of delinquent owners in the association may exceed the lender's guidelines, and now there's another reason it may not close escrow--for any owner. Non-payment of dues may force other HOA members to pay special assessments to make up for the loss of income, which may be a hardship for many owners who are struggling to stay current because of their own loss of income or job cutback issues. This may actually increase the number of delinquent owners.

Contrary to what many short sale sellers assume, lenders will not pick up all HOA costs, and many banks completely disallow any HOA costs in their approval, and that includes move-in, move-out fees, and provision of HOA documents to escrow as asked for in the contract, a total potential cost of up to $500 or more per transaction. Another potential outcome is that the owner will be pursued later by the association with a judgment filed against them. And I've also read that some bank approval terms are "requiring" buyers to pay the delinquency at closing, which is driving them away from the transaction.

So if the seller can't pay now because of all their financial problems, one option would be 1) to approach the association with a request to negotiate them down to what is possible, or 2) request a forbearance agreement and work out a payment plan over time. These are much better options for an owner who wants to do a short sale and avoid foreclosure.

The last piece of advice is that the homeowner should obtain legal advice. But unfortunately many people don't do that because that would be another bill to pay, so they look up information on the internet instead, which won't tell them about their specific situation. Find a legal clinic or some source of local legal advice which will be a resource. If you just decide to stop paying your HOA dues, it could ultimately cost you more than you think.

June's Median Price Showing An Increase in Long Beach/Lakewood Area

Single family median price in Long Beach

The median price in Long Beach for a single family home has gone up for June 2010 to $370,000, with a total of 205 homes sold in this category for the month. This is a general increase from the $353,000 median in June 2009. The number of days on the market is trending downward gradually, the current average is 66 days, compared to 72 last year. Of course, this is a broad figure designed only to show a general trend, since prices vary from local area averages of $250,000 to well over $1,400,000 in single family homes in Long Beach.

Lakewood single family median price

It's a similar story for the City of Lakewood, a smaller city conceived of through city planning in the 1950's and with not so much diversity in housing inventory and selling prices as Long Beach. In June of this year, the single family home median price was $400,000 compared to $375,000 last year.

Los Angeles County as a whole shows the same trend for single family homes: $342,000 this year, $326,000 last year, for the months of June (however, that's a drop from May 2010 median which was $350,000).

Condos in Long Beach are still not as strong as houses, but overall, offer a great investment while their prices are still lower. The median at $232,500 for the city has risen 2% from last year, but has fluctuated greatly in that time, with days on market currently at 96, lower than last year's 108.  The lowest days on market of 66 was in October 2009, matching end of year buying but mostly the 1st expiration of the $8000 tax credit. For Los Angeles County, the condo median dropped to $315,000 from $360,000 one year ago.

The Current Market is Offering Incredibly Low Interest Rates!

This afternoon I did an interesting calculation because I was playing around with a feature on my website. First of all, did you know interest rates are well below 5% on a 30-year fixed, even as low as 4.25%? Second of all, do you expect that to last forever? It's lower than any rate since the 1960's and before, and certainly lower than any rate in the last 15 years since I've been helping buyers and sellers.


I did this calculation for my 2 bedroom/2 bath condo in Bixby Knolls which is currently listed at $182,500. The default down payment was 20%, the default interest rate was 6%, so using those numbers for calculate principal and interest (only), the monthly payment came out to be $875.34. (That's the price of a one-bedroom rental in some areas.) But knowing that interest rates are much lower right now, I changed the assumptions to 4.25% and assuming an FHA buyer, I used 3.5% down, and based on a loan amount of $176,112.50, the monthly P&I payment came to approx $866.37!! (Please do not use this scenario for your final loan calculations as disclosed by a lender, this is intended for general information only.)

In other words, with lower interest rates right now a buyer could be saving the difference between $6387 and $36,500 to get the practically same payment for less money compared to the higher interest rates of just 1 and 2 years ago.

Back to my earlier point: it won't last forever, so why not take advantage of the market now if your only reason is that you're "waiting"?

I am here to help you with finding a new property, so I hope you'll let me do that, because you will be helping yourself!

Owners Have Options, But What is Best?

There have been numerous programs designed to assist the distressed homeowner launched under the Obama Administration. Most recent is the July 1, 2010 Home Affordable Unemployment Program (HAUP) designed to reduce, or suspend mortgage payments for at least 3 months, in coordination with the loan servicer's guidelines. The loan must be under $729,750 and originated on or before January 1, 2009, and must be in default already, or almost there. Monthly mortgage payment must be reduced to less than or equal to 31% of the borrower’s gross monthly household income and may be suspended in full. Borrowers who went through the Home Affordable Modification Program (HAMP) are not eligible, but a loan modification program may be put in place for the HAUP borrower once a job is found.

The programs available to borrowers are:

• Home Affordable Unemployment Program (HAUP)
• Home Affordable Refinance Program (HARP) - among the requirements is that the existing loan cannot be more than 125% of the current market value of the property, and must be an owner-occupied 1-4 unit property.
• Home Affordable Modification Program (HAMP) - A prime requirement, among several, is that it can be a property with either one or two loans on it, but the payment on the first loan (P.I.T.I.) must not exceed 31% of the gross monthly income of the borrower. Many borrowers have had trouble meeting that payment-to-income percentage figure, and then do not qualify for that loan mod.
• Home Affordable Foreclosure Alternative Program (HAFA) - This is a program with specific forms, guidelines and timelines and must be offered to the borrower by the participating bank if the HAMP loan mod has failed. There are certain protections and benefits to the qualified borrower under this program, but one problem has been the 2nd lien holders who refused to participate because they may not receive as high a payoff under this program. The buyer of such a property must also cooperate with certain timelines.

Lenders who chose to participate in one program are required to participate in all of them, which is currently about 140 lenders. IMPORTANT: To find out if your lender is, go to http://www.makinghomeaffordable.com/contact_servicer.html. Read about other aspects of these programs at http://www.makinghomeaffordable.com/.

If you have an FHA or VA loan, those loans will have their own version of this program.

Last, but definitely not least: Borrowers in distress who understandably do not want to give up their home, normally have a very difficult time "putting their foot down" on the subject of just how long they will attempt to pursue a loan modification with their bank before giving up. While some servicers are more responsive and are actively working with their borrowers, there are many others who are falling between the cracks.

 If a borrower has lost their job and is concurrently in a job search while attempting to pursue a loan mod that's already been started, or if a borrower keeps hearing that the bank needs an item that the borrower has already submitted, perhaps multiple times, or if the bank or servicer keeps adding new items required before it can give an answer to the borrower, my advice is: BORROWER BEWARE. The fact is, time is slipping away--you have no loan modification, plus you may now have a notice of default recorded on your property, and then the notice of sale will be posted to your door shortly before your 121 days are up. Some banks are taking their time recording a Notice of Default, but others are very unforgiving and will NOT extend your sale date without either the loan modification in place or an accepted contract from a buyer, because they need to move forward with that property. For most people, selling their property under short sale conditions has less severe long-term impact than going through foreclosure. Please contact me for more information about those conditions.

Please, don't let foreclosure sneak up on you while you keep telling yourself you're going to get the loan modification after you just send in one more piece of requested information. You must meet the servicer's requirements, and many people don't qualify due to financial circumstances. Before you get to that stage, investigate an optional short sale possibility early while you still have time to find a buyer, negotiate the contract, submit your short sale package, and get through escrow. This could make the difference between 2-3 years' impact on your credit record vs. 7 years' impact due to foreclosure.