[WSBARP] Judicial foreclosures and HOA

Tue Mar 14 13:02:24 PDT 2017

Carmen,

Most lenders will not lend on a property where the HOA could effectively wipe them out by foreclosing.  So most CC&Rs have subordination language and similarly, many have this same language about what happens post foreclosure – again, because lenders want it.  Not all to be sure.

So whereas COAs are somewhat ‘tied’ to what they can claim by the Condo Act (the 6 month/3 month w- notice) bit, HOAs are not.  If they do not have this language, then the only limit of ‘how far back’ they can claim is really the statute of limitations.  I see those as well.  The ‘best’ ones (from an HOA perspective) that I have seen have the waiver language like set out below which pleases a lender loaning on the property, but they also have this ‘kicker’ that says “all of that is true IF the lender provides a copy of the DOT to the HOA within 60 or 90 days of recording”.  Of course years later the lender who now has the loan has almost no shot of producing ‘proof’ that the original DOT was provided to the HOA in accordance with the CC&Rs notice provision unless the original lender was meticulous and that is pretty rare and if it was a MERS Loan, forget it.

Sincerely,

Rich Holland
rich at pnwle.com<mailto:rich at pnwle.com>
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From: wsbarp-bounces at lists.wsbarppt.com [mailto:wsbarp-bounces at lists.wsbarppt.com] On Behalf Of Carmen Rowe
Sent: Tuesday, March 14, 2017 12:34 PM
To: wsbarp at lists.wsbarppt.com
Subject: [WSBARP] Judicial foreclosures and HOA

Richard -

I am curious why an HOA/COA, absent mirroring a statutory requirement, would have this in their CCRs/declaration? You've seen this before absent such a statute?

Seems a resource that the association is giving up for nothing. In practice, at least in my experience, while the obligation to do so can be murky banks will often square the past dues upon the eventual sale to ensure title/avoid the hassle. (Getting them to pay along the way is a whole other story; but at least there is often eventual payment)

Just curious what's out there.

Your advice for when an advisor is involved in drafting such language is very helpful.

Carmen Rowe, Attorney
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Message: 5
Date: Tue, 14 Mar 2017 18:02:08 +0000
From: Richard Holland <rich at pnwle.com<mailto:rich at pnwle.com>>
To: WSBA Real Property Listserv <wsbarp at lists.wsbarppt.com<mailto:wsbarp at lists.wsbarppt.com>>
Subject: [WSBARP] Judicial Foreclosures & HOAs
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While admittedly I have personally seen this come up more in Oregon (because of how the statute is worded), I have had it come up in Washington and am just passing this along for those HOA advisors.  For sake of brevity, here is the Oregon Statue that, in various forms of language, appears in many CC&Rs:

Oregon Statute 94.723 Common expenses; liability of first mortgagee, once a lot in a planned community is foreclosed upon the mortgagee and subsequent purchaser shall not be liable for any of the common expenses chargeable to the lot which became due before the mortgagee or purchaser acquired title to the lot.  The unpaid expenses shall become a common expense of all lot owners including the mortgagee or purchaser.

The problem is when is "Title" acquired after a judicial foreclosure?  One argument is that it is the date of sale but that isn't accurate because you do not get a Deed (which is the instrument that conveys TITLE) until after the redemption period.  The other obvious one is that it is the date of the deed - though I have also heard the date of recording of the deed argued.  If you represent the lender, you want it to be the date the lender actually got title.  If you represent the HOA, the obvious issue is that the debtor is no longer responsible for payment after the date of sale - they have been foreclosed out - so who is responsible for paying the dues during the redemption period?  (And remember, if the US Gov't is on the title that can be 18 months in some situations).

When I have had the opportunity to advise HOAs, I suggest that they either specify this as "the date of sale" or as "the date the mortgagee obtained the right of possession" or I suppose you could say "the date the purchaser acquired title or the right to possession, whichever is earlier" but being a verbose sort why not go all out and say "The purchaser shall not be liable for any of the common expenses chargeable to the lot which became due before the earlier of:  1) The date of sale; 2) the date the purchaser acquired title; or 3) the date the purchaser obtained the right to possession".    And yes, a right of possession in the general sense could be in a rental agreement but not in the context of where the provision is in the CC&Rs.  Anyway, it's a random thing to post but it came up for me again today so it was fresh on my mind and I thought I would pass it along.

Sincerely,

Richard L. Holland

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603 4th Avenue, Suite 100                                PLEASE NOTE OUR NEW ADDRESS!
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