A seller remains responsible for his homeowner's association dues, even when he can't afford his mortgage. The HOA can complicate and even halt a short sale, as the association can legally attempt to recoup unpaid dues. The seller can avoid an HOA lien on his property, foreclosure by the association or a personal judgment against him after the sale by keeping his payments current in a short sale.
A seller must appeal to his mortgage lender to accept a loss in a short sale. Because the transaction results in sale proceeds less than the mortgage indebtedness, gaining short sale approval is often an arduous process which takes several months. Given the potential pitfalls of unpaid HOA dues, real estate agents and professionals in the short-sale field typically recommend that sellers remain current on their HOA dues until the short sale closes.
The lender tries to minimize its losses as much as possible when considering a short sale. It usually allots only $200 to $500 toward unpaid HOA dues, if any money at all. It may also approve the short sale but deny payment for certain outstanding seller fees, such as HOA and utilities. A short sale transaction requires a clear transfer of title, which an HOA lien or foreclosure inhibits. Should title transfer and HOA fees remain outstanding, the association can legally purse the seller -- the previous owner -- for unpaid dues. A short sale does not extinguish the HOA balance or the seller's responsibility for paying it.
Unpaid HOA dues hurt the association's finances and the condominium complex or subdivision as a whole. In addition to placing an additional burden on the buyer for a short sale, the community may suffer from lack of funds to properly maintain common areas and services. Also, buyers' lenders require that HOAs prove they are financially sound before making loans. For example, Fannie Mae prohibits financing a purchase in a complex where more than 15 percent of homeowners are in arrears.
In the event that a buyer wants to continue with a short sale closing despite unpaid HOA fees or a lien on title, the buyer may cover the expense to make the deal happen. HOA liens usually include late fees and attorney fees the association incurred in the collection process, increasing the cost of clearing title for a short sale. The buyer may pay off delinquent dues or a lien before going to the closing table and, in some cases, at closing.
- Short Sale Expeditor: Should Short Sale Sellers Pay HOA Dues?
- Freddie Mac: Buying a Short Sale Property
- National Condo Advisors, LLC: FHA and Fannie Mae Project Approval Compliance
- National Association of Realtors. "Short Sales & Foreclosures." Accessed July 6, 2020.
- National Association of Realtors. "The Short Sale Workflow." Accessed July 6, 2020.
- Federal Trade Commission. "Getting a Mortgage after a Short Sale." Accessed July 7, 2020.
- IRS. "Real Estate Property Foreclosure and Cancellation of Debt Audit Technique Guide," Page 2. Accessed July 7, 2020.
- National Association of Realtors. "Short Sale Relief on the Horizon?" Accessed July 7, 2020.
Karina C. Hernandez is a real estate agent in San Diego. She has covered housing and personal finance topics for multiple internet channels over the past 10 years. Karina has a B.A. in English from UCLA and has written for eHow, sfGate, the nest, Quicken, TurboTax, RE/Max, Zacks and Opposing Views.