Short Sale awaiting HOA resolution (Baltimore: short sales, foreclosure, HOA fees)

[ChuckWP]

I am in the home-buying process in Baltimore city and have been awaiting final approval for four months now (verbal agreement on price negotiation in mid-July). After months of essential silence, were able to verify that the seller owes ~$9,000 in HOA fees (I did the math, at most his actual fees would be 5K from his purchase date, so assuming 4K is late fees over the 7 years he owned it if he never once paid) - This property has been vacant since at least April if not slightly longer. I can't verify but would assume this is a lein on the property given the value. There is a title company (specific company required by seller's bank) involved and i'm not sure if they/title insurance covers any of this either, but to the best of my knowledge this is the only hurdle before getting the approval letter.

Does anyone have experience with these situations in short sales? I have not yet been asked to contribute anything, currently the seller's bank is willing to cover $1,500 of it and the negotiations are ongoing between them, the seller and the HOA. From related threads it seems HOAs don't budge often, but may forgive the late fees if they can collect most/all of the principle (especially considering the primary mortgage lein is taking a loss on the home (hence why it's a short sale). I've heard conflictions on whether they can still collect if the seller forecloses/declares bankruptcy, and if they can whether that debt remains with the former owner or the property itself; not sure if this would happen but would be good to know if the HOA has something to lose in that situation or if they are covered and have no reason to budge. I can walk at any time, but it's a good value on a nice home, I just want to be mentally prepared if/when they come asking for buyer support as I am strongly averse to taking that large of a hit on my first home for someone else's irresponsibility.

Any insight along with the why behind it would be much appreciated.

[bufflove]

I'm not an attorney (so please appropriately discount my opinion), but I did deal with this situation 5-10 times from the side of a condo board member in a different MD jurisdiction.

A chunk of the $4K "late fees" is likely legal fees/costs incurred to secure a lien. That's money out of the HOA's pocket so it's a consideration on the board's part; if it's owed $5K in HOA fees and spent another $3k in legal costs then a $1500 settlement offer from the primary lien holder (owner's bank) might be seen as unacceptable. Yes, the HOA technically could continue attempts to recover payment from the current owner even after they no longer own the property, but with no lien in place there's no leverage on the HOA's part so realistically any outstanding fees are not going to be recovered.

Negotiations - or even standard communication - between the primary lien holder (bank) and secondary lien holder (at least the HOA, if not others) will not be a speedy process. The board likely only meets once a month and banks are notoriously slow to respond to short sale situations.

I can't imagine you'll be asked to pay off any of the liens. That'd be awfully shady and probably not allowed by your mortgage company, anyways. The lien negotiation is (and very much should be) between the primary and secondary holders.

In my situation, our attorney always encouraged settlement and approval of short sales. The realistic alternatives are 1. the unit remains vacant and continues to not pay dues for X number of years or 2. the unit is foreclosed on and the secondary liens (outstanding HOA dues, legal fees, etc.) are completely wiped out. If I were you, I'd simply remain patient and certainly wouldn't agree to paying any of the owner's liens for them.

[ChuckWP]

Thanks for the insight, while you arent a lawyer, having a multitude of examples provides a good base for me. That falls in line with much of what I thought/saw in related cases. I do know the HOA is contracted out to a company that solely handles them; while there is a board of volunteers they do not handle much outside of proposals and votes, decisions go up the ladder to those being paid.

It's a relief to hear and I had heard that could happen with carryover debt. My only concern was a coue posts mentioned potentially having the fees carryover to the future owner, but I had heard titles generally need to be free and clear (unless something is missed) when transferring ownership. Hoping it will be resolved soon, this could have been going on since before the house was listed or as recently as last month, so fingers crossed!

This is a relatively new HOA (Entire community is only 7 years old), so I would figure excess capital isn't their strong suit at the moment and they may be best suited settling for what they can get and getting someone new in to pay those fees timely and consistently moving forward.

[ChuckWP]

Update: Seller's bank just added another 2K to the HOA settlement (turns out the first 1.5K was FHA funds), so hopefully the $3,500 will be enough to satisfy them. I did read that MD law may allow them $1,200 in priority (and now that is more than covered), but the bank should have the primary lein and get preference due to all parties taking a loss. Given the risk of loss in foreclosure I think that is a fair offer considering it's likely the majority of the principle (doubt the guy never paid, so likely more in late fees/legal fees); perhaps they can also get the seller to carry-over some of the debt as well.

[bufflove]

Hope it works out for you!