Will "Super Liens" Prevent You From Selling Your Condo?
By William Dorich, Realtor®
“Fee Simple” is a term used by Realtors to describe ownership over both the land and the structure on it—however, in the real world of Condo ownership the term has lost its meaning unless you were capable of buying every unit in the building and could then determine what you wanted to do with the entire building—a landlord who owns and rents an entire building functions as “Fee Simple” but Condo owners only own the interior walls of the unit they purchase.
Over the decades under the condominium concept this gave homeownership to the average buyers who wanted to reduce purchasing costs, do away with the “money pit” aspects of a private home, simplify their lives and not be burdened by the gardening and upkeep … with a turn of the key Condo owners take a vacation and can have minimal concerns about the safety of their home.
The Condo concept did not begin in the United States. It began in Puerto Rico and did not attain legitimacy until legislation in 1970, so most Condo buildings in your city are about 30 years old. These buildings are beginning to show their age, aesthetically, functionally and density-wise—I think that in the not-so-distant future these buildings will feel the full effect of their negative repercussions considering they can’t be torn down unless a builder/developer will buy the entire complex…not a too realistic thought.
Since the crash of 2008 the rules regarding Condo ownership have quietly changed and the mortgage companies have dictated the sale of the walls around you, even as the HOAs allegedly had priority over lenders. Those HOA rules are now having a major impact on sales and can stand in the way of the ability to sell the unit. Many lenders have rules as to how many units in a Condo complex can be rented, which can affect the possible sale of your unit.
On one of my recent Condo listings, I was informed by the management company that any future buyer must live in the unit one year before being able to rent it out, and that there is a 4-5 year waiting list for rentals. Therefore, someone in a financial bind could find themselves unable to rent out their unit and could be forced to sell, or, worse option, foreclosed.
Entering the 21st century of Condo ownership we are beginning to see what are called “Super Liens,” these occur when a condo owner stops paying their taxes and/or HOA fees. The HOA is forced to put a lien on the property for the monies owed, hoping the owner will sell or foreclose so the association can recoup the amount owed. Meanwhile, the entire complex can be assessed for the missing HOA fees that can go on for months or years. If the association forecloses and sells the unit, that too can be a Catch 22, if the sale of the unit is not adequate to pay off the existing loan and back taxes, leaving no profit to reimburse the HOA.
“Super-Priority” liens are used in 22 states, not including California. In 2009, I wrote the book Defeat Foreclosure (currently in its 3rd edition). In the wake of the housing bust and subsequent recession, many Condo associations were hard pressed to take care of buildings, recreation centers and other amenities, even postponing a new roof. When large numbers of unit owners default on their mortgages and stop paying their HOA assessments that stress on the entire community can become extreme.
Lenders are not too sympathetic to Home Owners Associations and are more interested in the “property (unit)” on which they hold the mortgage. For instance, if a homeowner owes $8,000 in association fees and has a $250,000 mortgage the one who benefits from a foreclosure is an investor or bargain-hunting buyer who obtains the property for the back assessment amount plus fees, leaving the lender with huge losses. In this process buyers can face higher loan fees, requiring bigger down payments and time-consuming examinations of the community association’s finances and CC&R’s. Some lenders may decide not to extend loans on a unit in a building affected by these types of liens.
William Dorich, Realtor,® Keller lic#00804536Williams Realty, Beverly Hills, lic.#00804536. (Photo by Wm. Dorich)
By William Dorich, Realtor®
“Fee Simple” is a term used by Realtors to describe ownership over both the land and the structure on it—however, in the real world of Condo ownership the term has lost its meaning unless you were capable of buying every unit in the building and could then determine what you wanted to do with the entire building—a landlord who owns and rents an entire building functions as “Fee Simple” but Condo owners only own the interior walls of the unit they purchase.
Over the decades under the condominium concept this gave homeownership to the average buyers who wanted to reduce purchasing costs, do away with the “money pit” aspects of a private home, simplify their lives and not be burdened by the gardening and upkeep … with a turn of the key Condo owners take a vacation and can have minimal concerns about the safety of their home.
The Condo concept did not begin in the United States. It began in Puerto Rico and did not attain legitimacy until legislation in 1970, so most Condo buildings in your city are about 30 years old. These buildings are beginning to show their age, aesthetically, functionally and density-wise—I think that in the not-so-distant future these buildings will feel the full effect of their negative repercussions considering they can’t be torn down unless a builder/developer will buy the entire complex…not a too realistic thought.
Since the crash of 2008 the rules regarding Condo ownership have quietly changed and the mortgage companies have dictated the sale of the walls around you, even as the HOAs allegedly had priority over lenders. Those HOA rules are now having a major impact on sales and can stand in the way of the ability to sell the unit. Many lenders have rules as to how many units in a Condo complex can be rented, which can affect the possible sale of your unit.
On one of my recent Condo listings, I was informed by the management company that any future buyer must live in the unit one year before being able to rent it out, and that there is a 4-5 year waiting list for rentals. Therefore, someone in a financial bind could find themselves unable to rent out their unit and could be forced to sell, or, worse option, foreclosed.
Entering the 21st century of Condo ownership we are beginning to see what are called “Super Liens,” these occur when a condo owner stops paying their taxes and/or HOA fees. The HOA is forced to put a lien on the property for the monies owed, hoping the owner will sell or foreclose so the association can recoup the amount owed. Meanwhile, the entire complex can be assessed for the missing HOA fees that can go on for months or years. If the association forecloses and sells the unit, that too can be a Catch 22, if the sale of the unit is not adequate to pay off the existing loan and back taxes, leaving no profit to reimburse the HOA.
“Super-Priority” liens are used in 22 states, not including California. In 2009, I wrote the book Defeat Foreclosure (currently in its 3rd edition). In the wake of the housing bust and subsequent recession, many Condo associations were hard pressed to take care of buildings, recreation centers and other amenities, even postponing a new roof. When large numbers of unit owners default on their mortgages and stop paying their HOA assessments that stress on the entire community can become extreme.
Lenders are not too sympathetic to Home Owners Associations and are more interested in the “property (unit)” on which they hold the mortgage. For instance, if a homeowner owes $8,000 in association fees and has a $250,000 mortgage the one who benefits from a foreclosure is an investor or bargain-hunting buyer who obtains the property for the back assessment amount plus fees, leaving the lender with huge losses. In this process buyers can face higher loan fees, requiring bigger down payments and time-consuming examinations of the community association’s finances and CC&R’s. Some lenders may decide not to extend loans on a unit in a building affected by these types of liens.
William Dorich, Realtor,® Keller lic#00804536Williams Realty, Beverly Hills, lic.#00804536. (Photo by Wm. Dorich)
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