Thursday, April 21, 2011

Do buyers of bank owned homes pay for back owed HOA dues?

Image ID 1279316 by StockExchange user Yello-dogGot this question from a current buyer client:
Hi Heather:

Silly question, we are not responsible for back HOA fees, are we?


This isn’t a silly question at all. The short answer is “no”. The longer answer is below. Keep in mind I’m talking about buying a bank owned foreclosure (“REO”) home in the metro Phoenix real estate market in April 2011. Consult a residential real estate professional in your area.

1) Whatever HOA dues the former owner of the home didn't pay are not the new buyers' responsibility. Those unpaid dues follow the former owner, and the former owner is financially liable for them. HOAs have the rights to sue former owners for those unpaid back dues, but in reality many times the HOA won't get that missing money back. (huge thank you to our colleague Dean Ouellette for catching my former error here by saying the old dues get wiped out by foreclosure).

2) The selling bank customarily pays all HOA dues owed from the date they took ownership until the date you close your purchase.

3) The dues for the month in which you close will be pro-rated with seller paying for days they owned the home, and buyer paying for days they will own the home. Note that closing day is allocated to the buyer, meaning the buyer pays for the HOA dues for that day.

4) Note though that HOAs usually require 1 to 3 months pre-paid HOA dues at close, and there are transfer fees as well (usually $100 to $500) and then there is sometimes another fee called "Capital Contribution" which is essentially a payment into the HOA's Reserve Fund (savings account) which is usually another 1 to 3 months.