“Phantom” Liability for Condominium and Homeowner’s Association Dues and Assessments Provide Another Reason for Distressed Sellers to Short-Sell Their Homes
Last April we distributed a legal memo (“Surprised Owners Find That Personal Liability Looms for Unpaid HOA And Condo Fees”) which explained that many owners of condominium units and homes which are subject to the payment of mandatory HOA fees have personal liability for the dues and assessments that accrue during the period of their ownership. Many are surprised to learn later that the personal liability for those fees that accrue during their ownership is not extinguished even if the property is foreclosed upon by the mortgage lender or if they sell the property in a short sale transaction.
Here is another (scary) twist on that scenario that recently came across the desk of one of the attorneys at Goldstein & Levy, which acts as general counsel to Capitol Title:
Bob and Mary owned a condominium which was severely “underwater” and when they had difficulty finding a short-sale buyer they decided to “give up”, stop paying their mortgage, relocate to an apartment and try to start rebuilding their finances. Two and a half years later they heard a knock on the door and the sheriff handed them a civil lawsuit filed against them by the condominium association for over $20,000 in unpaid condominium fees. After researching the situation, it was discovered that the condominium unit had still not been foreclosed upon by their mortgage lender. As a result, they still owned the unit and the condominium fees for which they were liable continued to accrue and will continue to accrue unless and until the condominium unit is transferred. In other words, the failure of the mortgage lender to foreclose has caused (and continues to cause) their personal liability for the condominium fees to grow each day!
This example provides another reason why owners in this situation should be motivated to aggressively pursue a short sale or consider other loan mitigation alternatives that will result in the termination of their ownership of the property and their liability for condominium or homeowner’s association assessments.