Question: If an owner does not pay their HOA dues it is the right of an HOA to foreclose on the owner’s home to recover the delinquent dues and legal fees. For example, a house was owned free and clear and valued at $185,000. The HOA was owed $3,000. What happens to the excess proceeds after the foreclosure sale? Would the HOA get the entire $185,000 foreclosure sale proceeds, or would the HOA only get the $3,000 delinquent HOA dues, and the homeowner would get the remaining $182,000?
Answer: There are sophisticated investors who look at foreclosure notices every day. These investors then compare the value of the home to the amount owed at the time of the foreclosure sale. The sale is usually scheduled to be held on the “courthouse steps”. If there are potentially large profits in buying the home at the foreclosure sale, these investors (or their representatives on cell phones) will attend the foreclosure sale to try to buy the home. In a foreclosure sale of a $185,000 home for $3,000 in delinquent HOA dues, the HOA will start the bidding at the amount of the delinquent HOA dues, plus foreclosure costs such as attorneys’ and title fees. Therefore, the total bid by the HOA at the foreclosure sale could be $6,000. In light of a potential profit of more than $150,000 on a subsequent sale of the home, there would probably be a bidding war among several investors at the foreclosure sale. If the winning bid by an investor is $100,000, that investor would first pay the $6,000 owed to the HOA. The homeowner would get the excess proceeds of the sale or approximately $94,000. The investor could evict the homeowner who is now a tenant and then sell the home as quickly as possible.
Note: Several years ago a lady lost her free and clear Gilbert home worth $220,000 because she hadn’t paid $8,600 in HOA dues and costs. This lady had been severely depressed because of the death of her mother, and hadn’t responded to any paperwork from the HOA for many months. At the foreclosure sale, a real estate broker outbid other investors and bought the home for $50,000. When the real estate broker served eviction paperwork on the lady to start the eviction proceeding, the lady contacted the Arizona Republic and Three On Your Side. The real estate broker did not want bad publicity, so the real estate broker sold the home back to the lady for $50,000.