Written By Courtney Newton
Here is the situation:
We recently had a buyer put an offer on a house that the seller was behind on their mortgage and HOA dues. The buyer agreed to purchase the distress property for the amount of the payoff. When beginning the process we were told the HOA dues were no more than $3000 so the offer reflected that net: paying off the mortgage and no more than $3000 in HOA fees. Fast forward three days and the HOA account balance came in at nearly $21,000!!! You may think to yourself how does one get $21,000 in HOA fees well very simply: Ignore 3 violations of property maintenance for an extended period of time at $250 a week for each violation and it adds up fast. So we had a mess on our hands.
The HOA didn’t scare me because they are 2nd in line and they know it. I also know that at the end of the day it isn’t about the money for them don’t actually believe they are going to get $21,000 they simply want the violation addressed quickly. In 9 out of 10 cases, most folks fix the repair right after the first fine is assessed. In that 1 out of 10 you get the above seller who just didn’t care. She was in a situation of I don’t care.
She was already behind on her mortgage and the HOA was an after thought. So when I went to the HOA I was clear to them our goal is to get an HOA paying, property maintaining new resident and get the non paying resident out. This the focus to redirect them to the problem not the amount. We like to focus on the other elephant in the room that most folks wont bring up—if this property goes to foreclosure then the HOA gets nothing because of the foreclosure and they still have the repairs needed to be done by a bank thousands of miles of away. This is scary for the HOA to have an owner who simply lets the property further deteriorate.
They also have the bank potentially getting to the property in a number of months after foreclosure also causing them to get no new money until the property goes to the market and eventually closing. This is a terrible strategy for the HOA because they want to keep the property’s maintained. I say this because having worked with HOAs and foreclosures I know on houses in very strict communities I will get calls immediately when my sign goes up if there are outstanding violations. Notice of violations does not equate to money.
The HOA agreed to reduce over $17,000 in their fees in an effort to get the property closed and a new owner in the property. This was the smart move by the HOA. What other kinds of liens could you have that could also be negotiated this way? One of the easiest is the HOA, the other is a creditor who has a judgement against you. The key is to not let them know it is part of a closing but rather simply trying to clear your title. If the creditor knows you are selling the property they will be unwilling to negotiate because they know you have to have them paid off to be able to close. There is no incentive for them to negotiate or to take a reduction.
The challenge is how do you pay them before the closing? The solution is to get the payoff in writing with an payoff date for the closing date or a date a few days after. This will allow the attorney to use this to go through with the closing, use the proceeds from the closing/sale and pay off the creditor without them realizing where the funds are coming from. Another way is to simply pay once you have it in writing as to what they will accept. I can’t emphasize enough to not send any money to them without having it in writing as to what they will accept. Always remember you are dealing with a credit collection institution not the company you originally credited the debt with. The credit collection institution is typically an attorney working for the debtor or the group that bought the debt from the original creditor. You have to get everything in writing and pay only once you have it.
If you choose to pay the debt prior to closing keep in mind that you are typically able to negotiate 30-40% of the debt. Remember in our real life example of the HOA lien we went from over $21,000 to $3500—that is 83% off of the bill. So start low. If the bill is less than $5000 offer $250 and see what they say. The goal is to see how far they come down. A good rule of thumb is to go three rounds of offers. Typically the third offer is the best you are going to get. Always get it in writing when you are to the point to send money you want to see the terms in writing and make sure they are going to sign a release of the lien.
That is the last step after you have paid them is to have a document prepared by an attorney that releases the lien from your title. Typically what we do is send the payment with the release of lien document—this is a simple way of saying—here is your money now clear the lien from my title. This is imperative to get immediately—while it is fresh with the company you settled with. I cant count how many last minute trying to get these and how difficult it was to get because we couldn’t find the right person to issue the release of lien. Even with proof of payment, cancelled check, email chains, or whatever other evidence you have to get the release taken care of to be able to clear that title. Do it when you send the payment—you will be thankful you did versus trying to do it when you have a hundred other things to sell the property.
Liens are no fun but knowing what your title looks like up front. If you are afraid you have judgements, collections or delinquencies on your title work with an agent that can run title up front and get you a clear picture of what is going on.