Can I do a short sale if I have an HOA lien on my home?

Tips on getting your homeowners association (HOA) to accept a short sale when it has a lien on your home.

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If you have a homeowners association (HOA) lien on your condo, townhome, or house for nonpayment of dues, you can do a short sale. But it might not be easy.

How Short Sales Work When You Have an HOA Lien

If the HOA has a lien on your home, it will have to release it in order for the short sale to go through, just like any other junior lienholder. (Learn more in Nolo’s article Short Sales With Multiple Mortgages).

To get the HOA to release its lien, your mortgage lender will have to give up a portion of the short sale proceeds to the HOA. Usually, the amount it offers is less than the total debt owed. A problem can then arise when the HOA wants the debt paid in full, but the lender doesn’t want to give it any more of the sale proceeds. If the HOA refuses to accept the amount offered by your lender, this could cause the short sale to fall through.

How to Get the HOA to Agree to the Deal

To convince the HOA to accept the amount offered by the lender and agree to a short sale, you can argue that this is an easy way for the HOA to get some money with little effort on its part. Because collecting the debt on its own can be time consuming and expensive,a short sale might be the easiest way for the HOA to get a portion of the money it is owed.

You can also argue that if the HOA will accept a reduced amount and permit the short sale, it can avoid the problems associated with an empty, foreclosed property in the neighborhood. Vacant properties tend to fall into disrepair and can attract vandals. However, a person who buys a property in a short sale will likely maintain the property and will also start contributing dues to the HOA.

Another Option: Make Your Own Arrangement With the HOA

If the HOA will not accept the amount offered by the lender and the lender refuses to give up more of the short sale proceeds to the HOA, you may be able to pay the HOA yourself (immediately or at a later date) in order to convince the HOA to release its lien.

If you do this, you must disclose the terms of the agreement to the lender and any other lienholders. This is because the HUD settlement statement for the short sale must show all charges that are part of the deal, even if you pay the HOA outside of escrow. Additionally, you’ll most likely have to sign a short sale affidavit that will include a statement that you have disclosed all outside agreements to the lender. (Learn more in Nolo’s article Short Sale Fraud: Three Scams to Avoid.)

If you hide the fact that you have made a separate arrangement with the HOA from the other lienholders, you could face criminal and civil liability.

Deficiency Judgments

It is also worth noting that the HOA could potentially come after you for a deficiency after the short sale. (A “deficiency” in this context is the difference between the total amount owed and the amount the HOA receives in the short sale.) To avoid a deficiency judgment, the release of lien agreement must include clear language that the HOA waives its right to collect the deficiency. Without language prohibiting a deficiency judgment, the HOA may sue you sometime later on down the line to try to collect the remaining amounts owed on the debt. (Learn more in Nolo’s article How to Avoid a Short Sale Deficiency Judgment.)

by: , Contributing Editor

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