C.R. from Bucks County, Pennsylvania writes:
Dear Mister Condo,
Do mortgage companies ever pay HOA dues other than the initial few payments?
Mister Condo replies:
C.R., it is not unheard of for mortgage companies to pay HOA dues in a few circumstances. Banks and mortgage companies do not typically do this but there are a few times I have heard of it being done. The first is foreclosure. If the unit owner is in default of their mortgage and the bank takes possession of the unit via foreclosure, they may agree to pay the HOA dues during the sales and liquidation process. This usually is just for a few months or the time it takes to liquidate the home through auction or sale. The second I know of is via escrow. The purchaser or the lender has decided that the HOA dues will be collected by the lender in escrow and then paid by the lender, much in the same way taxes or insurance might be. Again, this is unusual. The most common reason a bank pays fees for the first one or two payments is for closing purposes. Most lenders require one or two months fees up front and then pay those fees out of escrow. Thanks for the question!
If you have purchased a condominium or property in an HOA you have signed a rider. For condos its called a Condo Rider. For HOAs its Called a PUD Rider. This rider is an attachment to the document recorded in the land records to secure the note given by the lender (aka mortgage). These riders are a path to collect delinquent HOA and Condo Fees.
Banks Have a Stake in Assessments Being Paid
One of the most important items contained in the Rider deals with maintenance fees. It is very important to the lenders that these fees are current. The mortgage company has an interest in the property. The mortgage company wants you to pay taxes and insurance and they want you to pay your maintenance fees. It is especially important to them if the unit has equity. That is because the community association has the right to foreclose.
If you do not pay these your maintenance fees, the lender may pay them. Any amounts that it pays on your behalf will added on to the loan amount with interest.
To protect their interest banks want to know when a unit is delinquent in its payment of fees.
As a Stakeholder, the Bank May Opt to Pay Delinquent Fees
In the Condominium Rider/PUD Rider, you agree to conform to the condominium or HOA rules. Especially paying your maintenance fees. Failure to do so puts them in a difficult position. Lenders want to know if an owner is not paying maintenance fees. If you do not pay these your maintenance fees, the lender may pay them. Any amounts that it pays on your behalf will added on to the loan amount with interest.
Here is a direct quote from one such rider:
“If Borrower does not pay condominium dues and assessments when due, then Lender may pay them. Any amounts disbursed by Lender under this paragraph F shall become additional debt of Borrower secured by the Security Instrument. Unless Borrower and Lender agree to other terms of payment, these amounts shall bear interest from the date of disbursement at the Note rate and shall be payable, with interest, upon notice from Lender to Borrower requesting payment.”
Is Your Attorney Contacting the Mortgagor When Delinquent Accounts Are Turned Over?
When a unit owner becomes delinquent this is a method to recover those funds. Your collection solutions should be reporting these HOA delinquencies to the lenders. It is very rare that a community association attorney will do this.
Community Association attorneys will send a notice of intent to file a lien. Then they will record a lien. Then they may or not foreclose on the unit. That is a “legal process” not a “collections process.” The object is to recover delinquent HOA and Condo fees.”
Lenders Have A Path for Associations to Collect Maintenance Fees
An effective collections solution will contact all stakeholders to resolve the delinquency. If the owner pays that is great. If there is a possibility that the lender will pay that is good too. The lenders have provided a path for associations to collect their maintenance fees. That is an opportunity that is too good to pass up. Its easy simple and elegant. It is also effective nowadays that units have equity in them.
When a unit owner becomes delinquent this is a method to recover those funds. Your collection solutions should be reporting these HOA delinquencies to the lenders.
The banks want to protect their interests. If your attorney is not contacting the lender, they are not doing their job. If you hired an attorney to collect then they should try every option available to them.
Litigation Should Be a Last Resort
Foreclosure should be the last resort. To collect from delinquent owners you need to engage them. If that does no good, engage their lender. Collection agencies eager to collect will knock on every door before they litigate.
Take advantage of the resources that exist before you foreclose.
PUD and Condo Riders are there for a reason. Why not take advantage of the resources that exist before you foreclose. There are many paths to take to recover delinquent assessment fees. The best course of action is to hire a specialist to take on this task.
05/24/21
Your article assumes that the condo association has complied with all of the state laws when they request payment from the mortgage company. What would be your answer if the condo association was run by non-owners who have not complied with the law – bigtime? And if possible, do you know of any current litigation on this topic?
Thanks
S.M., I am not sure that I follow. The mortgage holder wouldn’t know about the association complying with state laws. Their lending agreement is with the unit owner and it is the unit owner that would be in default with the lender if the common fees aren’t paid on time as agreed. If a Board isn’t complying with state laws, it is up to the unit owners to act. Other than during the developer control period, it is unusual to have non-owners on the Board unless the governance documents allow it. Additionally, any elected Board that isn’t behaving properly can be voted out or, in extreme circumstances recalled. Again, provided the association is under its own control and not still under the control of the developer. Good luck!