Trickle Down Effect of Multiple Condo Unit Foreclosures Within an HOA

S.O. from outside of Connecticut writes:

Dear Mister Condo,

I’m considering buying a condo. But I noticed that it is having a foreclosure problem (due to not paying HOA fees). Should I not purchase the condo? What is the immediate or potential impact of foreclosure in an HOA if other units are foreclosed upon?

Mister Condo replies:

S.O., as you know, I am not an attorney so I cannot offer you a legal opinion on this matter. I must insist that you speak with a qualified attorney from your own state who is familiar with how unpaid HOA fees might affect your condo purchase. As a practical matter, HOA fee delinquency is handled quite differently in different states. In my state of Connecticut, for instance, the HOA has a priority lien for up to nine months worth of common fees on a unit that is foreclosed upon. If a unit that was 12 months in arrears is sold at a foreclosure auction, the HOA is granted 9 months of fees plus reasonable attorney costs for the collection efforts as part of the foreclosure sale process. I know of some other states where the purchaser of the unit may be liable for the owed common fees. If that is the case where you live, you had best know that before your make the purchase. I can’t think of a worse surprise than spending a lot of money on a condo only to find out you then also owe $10,000 or more in unpaid common fees associated with the unit!

If other units within the association are foreclosed upon, the liability to you can be significant. The annual budget of the association is generally derived by looking at the likely expenses of the association. Those expenses are offset by the expected income to the association, which come in the form of common fee payments. If half of the units in an association are in foreclosure, theoretically half of the expected income is not being generated, causing serious delinquency in the association’s ability to pay its bills. In such cases, the association may find it necessary to raise additional revenue from the unit owners who are not in default which they can do as a Special Assessment or a an increase to common fees for the next year. Either way, that money is coming out of your pocket.

I am not suggesting that you shouldn’t purchase this condo, S.O.. I am suggesting that you go into the purchase with your eyes wide open and the advice of a capable attorney on your side advising you of what might legally lie ahead for you. Good luck!