"Now You Own It"

 

As of January 1, 2006 and pursuant to Civil Code section 5715(b), the homeowner now has a 90 day right of redemption. What does this mean for the HOA?

    • S.B.S. Lien Services (S.B.S.) would previously record a Trustee's Deed Upon Sale (TDUS) to transfer title to the HOA. S.B.S does not record a TDUS as we used to, but we record a Certificate of Sale providing public knowledge of the sale being conducted. Upon the expiration of the 90 day right of redemption we will record the Trustee's Deed Upon Sale providing the HOA title to the property.
    • Once title is transferred via the TDUS, the HOA can proceed with taking possession of the property through an Unlawful Detainer Action (Eviction) or another mutual agreement between the occupant and the HOA. A commonly used agreement is Cash for Keys (CFK) agreement, wherein the occupant agrees to provide possession of the property, clean and free of any personal property in a certain time period in exchange for a cashiers check. Typically, an eviction would cost the HOA approximately $1,800.00 to $2,500.00 and take at least 75 to 90 days. If the HOA and homeowner wish to enter into a CFK agreement, we recommend a CFK agreement of $500.00 providing possession within two weeks. S.B.S. can facilitate and coordinate the CFK as well as the eviction.
    • Once the HOA has possession, the HOA can list and sell the property. S.B.S.'s sister company, Platinum Real Estate Network, Inc., specializes in this type of transaction. S.B.S. and Platinum can coordinate the transaction from possession to close of escrow. Upon close of Escrow the senior liens would be satisfied in the appropriate order and all remaining proceeds would go to the HOA as the owner. If the proceeds exceed the outstanding debt owed to the HOA, this is the property of the HOA to deposit into the HOA account to use at the HOA's discretion. If the purchase does not satisfy all of the debts outstanding on the property, then S.B.S. and the HOA would need to negotiate a "Short Sale" agreement with the Senior Lien Holders to close the transaction.

Q&A

Q: Is the HOA required to make payments to the Senior Lender(s)?

A: NO, the Lender(s) have the same foreclosure rights as the HOA did when the HOA foreclosed upon their Lien. The Lender(s) cannot demand payment from the HOA nor has any additional recourse against the HOA.

Q: If the HOA enters into a purchase agreement with a buyer and the proceeds do not fully satisfy the Sr. Lenders debt does the Sr. Lender have any recourse or ability to demand the deficiency from the HOA as the owner?

A: NO, as stated above, the Sr. Lender's only recourse is to foreclose on the property pursuant to the terms of the note and deed of trust executed by the borrower. In their foreclosure action, statute or otherwise does not provide a means wherein the Sr. Lender can directly pursue the HOA for any monies.

Q: What if the property is vacant during the 90 day right of redemption?

A: The HOA has the right to secure the property from damage and vandalism, but cannot remove any personal property until the 90 day redemption period has expired and the TDUS has recorded.

Q: What if the HOA has been informed of a buyer for the property? Can the HOA rent the property to a tenant?

A: Yes, the HOA has all of the ownership rights of the property and can enter into a rental agreement with a tenant. We recommend the HOA have their insurance carrier review the insurance policies for proper coverage.

Q: If the HOA enters into a rental agreement with a tenant, is the HOA required to make payments to any Sr. Lenders?

A: NO, there is a term that is used called "rent skimming". Rent skimming as used in this scenario is not illegal and does not create any additional liability to the lender. The HOA is deriving cash flow from a property that has been foreclosed by the HOA. The HOA's goal should be to have the Lender foreclose ASAP to become the responsible party for monthly dues or get the property sold to a new homeowner. Until that transaction completes, the HOA is allowed to rent the property and derive any cash flow possible without creating any liability to the Sr. Lender. We recommend the rental agreement with the tenant clearly disclose the HOA will not be paying the Lender and the Lender MAY eventually foreclose and extinguish the rental agreement. Full disclosure minimizes liability.