Thursday, July 22, 2010

Negotiating HOA dues in a Short Sale

HOA dues can be deal killers for Short Sales if you are not familiar with Minnesota law concerning Assessment Liens and how to negotiate them. As the Negotiator, you many times have to educate the lender as to how Association Liens are treated in MN. This post will give you a general idea of how they work and how to negotiate them.
Associations governed by MCIOA, retain what’s called a “Super Lien” status based on section 3-116 of the Uniform Common Interest Ownership Act (CIOA) for assessments accruing, without acceleration, during the six months prior to the expiration of the owner’s redemption period. So basically, if the lender were to Foreclose, the Lien would stay in place and the lender has to pay the dues from the date of the Foreclosure sale through the end of redemption and then monthly dues thereafter that until the property sells and the new buyer starts paying the monthly dues.
In the event of a Short Sale, from a title transfer standpoint, the seller is redeeming the property and then selling it to the new buyer, “subject to bank approval of a Short Sale.” What the means, is that technically, the Association is due the full balance. So the HOA can kill the deal by wanting a full payoff.
As part of the negotiations with the lender, on your initial “negotiating” HUD, you will want to put the full amount due, projected through the date of closing and hope that the lender will allow ALL OF IT. We have gotten many lenders to do that.
Well, what happens if the lender refuses to pay? Then what do you do? Well, that’s when you have to let the Loss Mitigator know that you know what you’re doing and educate him as to HOA rights in the state of MN and how the lien becomes a “Super Lien.” The bank is going to HAVE to pay at least six months of dues, probably more. So they can either allow at least six months, or they can take the property back and probably have to pay even more. Most of the time, here at Short Sale Mitigation Services, we get the lender to allow at least six months, sometimes more.
So what if the HOA now comes back and wants more than six months? They are definitely within their right since the seller is redeeming. That’s when your negotiating skills really come into play. You gota’ get the association to see that it’s not in their best interest to allow the lender to foreclose; specially if the property is in pre-foreclosure. You must drive the point across that the sooner the house is sold, the sooner the new buyer will start making regular payments. The Association is formed by unit owners themselves that usually have to pick up the slack of any units that are not paying their dues. So you HAVE to get to board member that will help you plead your case to the rest of the board. The homeowner hopefully can help you do that. Many times, you might be dealing with an admin person, or maybe even an attorney that is just stuck and will not budge. That is when you need to escalate to a decision maker. You help them realize this “Super Lien” provision is not likely to make the association whole, but it will lessen the “sting” of the loss suffered by the association as a result of the mortgage foreclosure. However, the association may have to wait quite a while to receive the funds from the foreclosing lender; most lenders simply pay their assessment liabilities from the proceeds of the closing upon their subsequent sale of the property.
We hope this posting is helpful in your Short Sale negotiations. If you have any questions, please feel free to contact us at info@mnshortsaleinfo.com or visit us on the Web at www.MNShortSaleInfo.com

Disclamer: This post is only an opinion and not legal or financial advise. Please talk to an attorney or an accountant for legal and financial advise.

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