Who Is Responsible for Paying HOA Dues for a Short Sale Property?

It can be heartbreaking and traumatic to face the loss of a home, but one avenue you can take to recover your footing is to opt for a short sale rather than allowing a lender to foreclose. That stated, your delinquent HOA fees can affect your situation so seriously, you may be turned down for a short sale even if everything else is in order. Who’s responsible for paying HOA dues in a short sale? You are.

What’s a Short Sale?

Trulia’s John Wesley Brooks calls it one of the “most misunderstood terms in the real estate industry.” Short sales -- also known as short payoffs -- take place when a lender agrees to accept a lower payoff and possibly waives closing costs so a troubled homeowner can get out from under a sinking mortgage. If you’re about to agree to a short sale because you have reached a point of no return, the impact on your credit rating will be minimal compared to walking away and letting the bank foreclose.

About HOA Dues

Read your homeowner association manual before considering a short sale. It might contain language outlining legal protocols regarding HOA dues in the event you find yourself in financial hot water and face a debt crisis. Monthly assessments are part of a legal covenant into which you enter when purchasing a home. HOA dues may cover costs like landscaping, maintenance, improvements required due to a property’s age and salaries for property managers. Homeowner associations depend on these revenues, which is why HOA guides devote so many pages to the topic.

Your HOA Dues History

Homeowners experiencing financial troubles can take one of two paths before reaching a point of no return: Some may stop making mortgage payments, but they continue to pay HOA dues. Others stop paying both. Defaulting on your HOA obligation can have serious implications for a short sale and, in some cases, it can put a fast end to negotiations if you have fallen too far behind. The money you owe can factor into whether a bank will even agree to allow you to do a short sale. If the amount of your overdue is large, your chances of qualifying for a short sale are pretty remote.

Investigate State Laws

In Arizona, for example, HOA dues are covered by a contract that's independent of the mortgage contract. Stop making your HOA dues payments once you decide to walk away from your home and you can be sued. Perhaps you have heard that homeowner associations must defer to mortgage companies, but your state’s laws may not offer this safety net. Your homeowner association can personally sue you for dues in many cases and even a bankruptcy filing won’t bulletproof you. “You are still responsible for ongoing dues that accumulate after the bankruptcy filing,” according to Arizona Home Lawyer.

A Separate Obligation

Tuscon short sale negotiator Shawn Polston tells clients “that no matter what happens with the property, they need to keep paying their HOA dues because it could come back to haunt [them]." In Florida, your HOA can start foreclosure proceedings against you, but that could be the least of your problems in the Sunshine State where HOAs can take draconian measures like locking residents out of community access gates, turning off water and even renting out units. HOA legal processes tend to move fast, too. Unlike typical one-year foreclosure processes, you could be on the curb in weeks if the association is in hot pursuit of you for nonpayment of dues.

Sensible Advice

In addition to consulting an attorney well versed in your state’s real estate laws -- contact your local legal aid foundation if you can’t afford one -- do your own homework to minimize the trauma of being rejected for a short sale. If you’re just starting the process and don’t want to pay HOA dues, the Bankruptcy Law Network recommends banking the funds in a separate account pending the outcome of the short sale decision. If you don’t have to reimburse your HOA for back assessments, use the cash to get on with your life, but since it’s more likely you are legally bound to pay this debt, you have the funds you squirreled away to do so.