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Pursued after Foreclosure: Deficiency Judgments & Unpaid HOA

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    Pursued after Foreclosure: Deficiency Judgments & Unpaid HOA

    Foreclosure Fees Haunt HOA

    June 18, 2011

    Three years into the foreclosure epidemic, desperate condominium and homeowner associations are now beginning to employ aggressive law firms and collection agencies in a new tactic aimed at recovering delinquent fees.

    The debt collectors working for these associations are asking the courts to use more extreme measures. In a few cases, they have gotten judges to help them freeze and confiscate the bank account of a former owner.

    Florida is gliding quietly into a new and potentially painful part of the boom-bust cycle, where stacked-up "deficiency judgments" for unpaid condo fees and unsatisfied mortgages could come back to haunt past owners. Many of them thought they had escaped further costs when they handed their home over to their lender.

    When a lender sells a foreclosed home for less than the mortgage, the difference -- or "deficiency" -- is typically registered in the court proceedings as being owed by the original borrower, but it is seldom paid.

    The same thing can happen with unpaid condo or homeowner fees. Either as part of the bank foreclosure or through a separate foreclosure action, the homeowner or condo association can ask the court for a deficiency judgment. In either case, even if these debt instruments gather dust for years, they remain valid and are accruing interest at the rate of 6 percent to 18 percent per year.

    "We are going to be seeing a lot of this," said Shari Olefson, a Fort Lauderdale attorney and author of "Foreclosure Nation." "Florida is a recourse state, which means they can collect what they can from the property and then they can go after the deficiency by going after the investor personally."

    Lawyers for the targets of these suits already are seeing more business.

    "I think there is going to be a whole cottage industry based on these judgments -- people coming into the office, saying they are now being pursued for the deficiency," said Matt Englett, a partner in the Orlando law firm of Kaufman Englett & Lynd, whose 65 lawyers spend much of their time defending homeowners from judgments.

    Association Law Group, a Miami law firm, is pushing the envelope in this form of recovery.

    Working for condo and homeowner associations, the firm calls its new strategy "Total Recovery."

    The firm recently recouped $4,000 in one case and is aiming for more than $25,000 in another now pending.

    "At this time, we have dozens of these Total Recovery actions in the pipeline to file and anticipate that by next year it may be more like hundreds," said firm partner Ben Solomon.

    If lawyers plot their course carefully, they can make the deficiency judgment against the former owner part of the original foreclosure proceeding. That way, the firm can go back for a simple hearing before a judge, rather than a whole new court case, to obtain what is known in the legal system as a "writ of garnishment."

    With a few exceptions, like personal jewelry, this judge's order can be used to confiscate almost anything of value -- including wages or the cash in a checking account.

    For the previous owners, who thought they were done with an "investment property" except for the bad credit rating, the garnishment can come as a rude shock.

    Homestead's Mary and Luis Renfigo found out the hard way how heavy a deficiency judgment can be.

    Earlier this year, Mary Renfigo got a phone call from the bank where the couple had their checking account, saying it had been legally frozen. A warning letter from the bank a few days earlier went unread.

    The couple had $2,300 in the bank, but all of it got swept up in the writ of garnishment. And that did not come close to covering what they now owed. With interest stacking up on the unpaid balance, the debt was $4,300.

    "It put us in a very difficult position," Mary Renfigo said. The couple set up their own date in court and arranged an 18-month payment plan.

    But a week later, after they had finally arranged a short sale of the other rental home they owned in the same community, the association's lawyers were able to force them right to the wall.

    "They said, 'We are going to put everything together, and you are going to pay in full or we won't let you short sell,'" Renfigo said. "We sold a car that weekend. That is how we paid it."

    The president of the Keys Gate Association where the Renfigos live, Kim Green, did not return a call for comment.

    "Most associations out there simply absorb this bad debt," Solomon said. "Our firm wants to be aggressive in going after every penny available to our clients, including the amount due from the prior investors."

    In addition to Association Law, other players have sprung up in the weeds left by the great residential housing boom that ended in 2006.

    One is Miami-based Association Financial Services; another in Tampa is LM Funding.

    The way both operate is to offer an association an upfront payment to handle the book of business, meaning the unpaid debts.

    In the case of foreclosed properties, the firms then work their way through the intricacies of each unit's finances, attempting to leverage money out of either the bank that now owns the property or the previous owner.

    Florida law sets limits on how much the lender has to cough up to the association -- 12 months' worth of payments or 1 percent of the amount of the original mortgage, whichever is less.

    But the cap on payments from the lender is only valid if the lender followed every single rule in the way it sought the foreclosure and in the way the loan papers were originally drawn up, notes Ken Arnold, Associated Financial's co-founder and chief executive.

    "You're going to do the research and see if they did everything according to the statute, by the letter," Arnold said, adding that it works the same for former investors.

    "You're going to do an asset search. You're going to find out what assets they have and what you're able to go after," he said. "The easiest thing to do -- hmm, I hate to say this -- but the bank account is the easiest. It is cash. The banks understand the process. It is a done deal."

    South Bay Plantation, a condo conversion project in Naples, had so many overdue condo payments -- part of $900,000 in total judgments -- that it came close to filing for bankruptcy protection, says Joe Sheehan, a resident who became president of the owners' association as part of long-running saga that started soon after the 2006 conversion.

    A retired accountant, Sheehan figured he could either walk away from the deal or treat it like a hobby and in the process, help all the other true-blue owners survive financially.

    Starting early this year, he and other board members interviewed four firms that do collection work for associations, including Association Law, Association Financial and LM Funding.

    The way it really works when the association takes the upfront payment, in general, is that it is getting the minimum: the 1 percent based on adding up the original mortgages, Sheehan said.

    The collection agency typically does turn over more money, but it keeps the interest, the late fees, and legal fees that it collects from either the banks or former investors.

    Two out of the four made upfront offers to get the book of business -- $100,000 and $125,000.

    Sheehan figured that was not enough, so he hired Association Law Group to go after the debts that involved heavy-duty legal work, while he and other board members did what they could on their own.

    "Just write a letter and say, 'Let's resolve this.' It is worth it for a couple of 44-cent stamps. The letters are all the same, just different amounts," he said.

    Sheehan and his fellow board members were surprised at the way some former owners came out of the woodwork to settle their debts through a negotiation, once they knew it was possible. "I was surprised at the good response we got. I would recommend trying that first."

    Whether a former investor worried about settling or an association officer worried about raising the monthly fees on those who are paying, staying emotionally detached is the only way to proceed, Sheehan said.

    "Do not get lost in this thing or it will just eat you up," he says. "There is only so much you can do."

    Darren Soto, an Orlando attorney and state legislator, says he and his legal staff are working on more than 750 active foreclosure defenses on behalf of individual clients.

    He thinks the current boomlet in collecting on behalf of associations is going to spill over into leftover mortgage debt.

    "I have seen a slow trickle of attempts to collect deficiency judgments on mortgages," said the Orlando Democrat. Eventually, "we will see a lot of banks selling these deficiency judgments to third party collection firms, and obviously those firms are going to be a lot more aggressive in collecting the money judgments.

    There is a five-year period from the end of a case judgment to establish a deficiency judgment. Then that judgment lasts for 10 years and it can be renewed for another 10 years.

    "You can even sue at the end and get more time, so there is all the time in the world to collect on these things," Soto said. "Yet there is this pervasive rumor that you can somehow walk away from your house and never have to worry about it again. And it is simply not true."

    Soto and other attorneys strongly advises those who owe money to a lender or an association to cut a deal, rather than letting the debt fester -- and grow.

    "You want to do it before you get back on your feet," Soto said.

    Englett, the other Orlando attorney, concurs: "If you just ignore it, you end up making some money and the next thing you know they garnish your wages or seize your bank account."

    There are two secrets for success in life:
    1.) Never tell everything you know.

    #2
    scary!!!!

    i do know in NC, for example that can't garnish or freeze you accounts. i have also heard here in florida, there is a MAX, provided one is the main househouse income source.

    i knwo that bank account seizures may seem more common than they really are. but, here are rules to follow if someone wants to take money from your bank account. so one can take steps beforehand to make this less of a threat.

    know how and when your bank accounts may be within a creditor's reach. uou can then take action, manage your debts, and keep your creditors content and account balances in the black.
    who is the account holder?

    a collector trying to get money out of your bank account will have a difficult time taking money from any account that isn't in your name. state laws vary widely on the power of creditors to reach funds in a joint account.

    "In some states, creditors can reach the entire balance of a married couple's joint account, for example. Some laws look to each account owner's deposits. Some states have joint tenancy laws to protect a married couple's bank accounts from creditors unless both husband and wife are responsible for a debt.
    Exempt Funds

    Even if the bank account is solely in your name, some funds are exempt from debt collection under state or federal law. The reason is to allow people to preserve funds to meet their basic needs.

    Exempt funds keep their status as exempt when you put them in a bank account and they stay readily available for use. Exempt funds can lose that protection if you convert them into a "permanent investment."
    Sources of Exempt Funds

    Although it varies by state, exempt funds would typically include:

    Most government benefits, including Social Security, unemployment insurance, veterans' benefits and public assistance
    A percentage of your earned wages, which varies by state
    Alimony or child support payments, and other payments for the support of a dependent
    Proceeds of the sale of property that is exempt from collection, such as a homestead exemption
    Disability or unemployment benefits from your employer
    Workers' compensation
    Retirement benefits, such as pension or annuity payments
    Amounts received due to a wrongful death claim or from life insurance
    Payments due to personal bodily injury, in an amount that varies by state
    Proceeds of guaranteed student loans

    Wildcard Exemptions and Your Choice

    Some states allow you a wildcard exemption of property or cash to be used as you see fit so you don't lose all of your money. So if you're forced to disclose your assets in a post-judgment procedure (sometimes called supplemental proceedings or citation to discover assets), tell the debt collector funds are protected as exempt or as a wildcard exemption.

    You'll also want to write a letter to the bank ahead of time to let them know that all the funds in a particular account are exempt.
    Seizure Process

    When the bank receives a notice from the debt collector, the bank must freeze nonexempt funds. This means you can't withdraw the money or use it to pay checks you've written. Act quickly to make alternate payments if you have checks out that could bounce.

    When you receive notice that your account has been frozen, respond with written notice to the bank and creditor about exempt funds. It's best if you can show all funds in an account are exempt.

    It can be complicated if you have mixed or commingled exempt and nonexempt funds. When you know there may be a judgment against you, try to plan ahead and keep exempt funds in a separate account.
    Protecting Your Exempt Assets
    Separate Exempt Funds

    Planning to protect exempt funds is a good idea and can save you time and effort if there's ever a judgment against you. Designate accounts for your exempt funds, and immediately inform the bank and creditors of that status if collection efforts begin. If the account is nonetheless garnished or set-off, you may have a legal claim against the creditor for wrongful garnishment.
    Act Quickly on Frozen Funds

    Many courts allow you a formal hearing to explain why the frozen funds shouldn't be seized or garnished. Check the seizure notice for instructions to challenge the seizure or with the clerk of the court where the judgment was entered. Act quickly to restore access to your accounts and minimize consequences such as bounced checks.

    It's important to provide detailed documentation that the funds in the account are from entirely exempt sources. For instance, you might provide:

    Bank deposit slips
    Paystubs
    Statements from government benefit agencies
    Statements from insurance companies
    Real estate closing statements
    Pension or annuity statements
    Bank account statements and registers
    Any other documentation to trace the source of funds as exempt

    It's best to provide the detailed documentation to the debt collector and the court ahead of time, in as clear a manner as possible. "


    again SCARY stuff!
    8/4/2008 MAKE SURE AND VISIT Tobee's Blogs! http://www.bkforum.com/blog.php?32727-tobee43 and all are welcome to bk forum's Florida State Questions and Answers on BK http://www.bkforum.com/group.php?groupid=9

    Comment


      #3
      Be proactive and quit acting like a victim. Get rid of the checking account and go with a Wal-Mart money card. Put excess cash you do not need in a ROTH IRA which will give you a better return. I have it linked to my IRA and put $100 in it monthly.

      Comment


        #4
        the laws in my state must be different than florida because in the firm where i work pretty much all of the sellers who are owners after the foreclosure pay all of the delinquent HOA and association dues that are past due right up to closing...and they keep all the properties up to the associations code etc... until the properties are sold too.

        Comment


          #5
          Originally posted by daxtell View Post
          the laws in my state must be different than florida because in the firm where i work pretty much all of the sellers who are owners after the foreclosure pay all of the delinquent HOA and association dues that are past due right up to closing...and they keep all the properties up to the associations code etc... until the properties are sold too.
          yes, i'm in florida too, in our HOA after or if someone goes into foreclosure, we (our HOA) doesn't go after the owner for the past dues, just a lien is put against the property, so it's really that we just add it the bank. if a person goes into bk well, then for certain we would not consider going after him or her.

          the property doesn't get the lien removed until the bank pays the back dues, or they can't get clear title to resale the property. we figured why go after someone that can't pay, so far we have collected a couple past due HOA fee, plus interest, etc.
          8/4/2008 MAKE SURE AND VISIT Tobee's Blogs! http://www.bkforum.com/blog.php?32727-tobee43 and all are welcome to bk forum's Florida State Questions and Answers on BK http://www.bkforum.com/group.php?groupid=9

          Comment


            #6
            I think hoa's are bloodsuckers who do zilch. Useless, and now even more so.

            Comment


              #7
              Originally posted by daxtell View Post
              the laws in my state must be different than florida because in the firm where i work pretty much all of the sellers who are owners after the foreclosure pay all of the delinquent HOA and association dues that are past due right up to closing...and they keep all the properties up to the associations code etc... until the properties are sold too.
              oh, i just wanted to clarify what i may have stated, didn't want you to misunderstand...after a foreclosure, our HOA does attempt to go to the homeowner, but, ONLY if they didn't file bk. since we are just beating a dead horse.

              however, if someone is in foreclosure and then gets a loan mod or brings their mortgage up to date, then we send out our "collection" letter. our board just decided it was easier if someone vacated the home and foreclosed to just add the costs to the lien, that way we know the bank must clear the lien to clear title when the bank resales the bank. even if they didn't file bk.

              our little HOA has just been able to recoup more money that way that going to the ex broke owner.
              8/4/2008 MAKE SURE AND VISIT Tobee's Blogs! http://www.bkforum.com/blog.php?32727-tobee43 and all are welcome to bk forum's Florida State Questions and Answers on BK http://www.bkforum.com/group.php?groupid=9

              Comment


                #8
                Just another reason I am ever so glad I told my hubby I would NEVER buy a home that belonged to a HOA.

                Comment


                  #9
                  Originally posted by kjrmom911 View Post
                  Just another reason I am ever so glad I told my hubby I would NEVER buy a home that belonged to a HOA.
                  Amen to that. I not only wouldn't BUY a home in a HOA, you couldn't GIVE me one. The way I look at it, when you have an association, you are functionally renting, except you get to deal with the maintenence headaches, pay for insurance, etc. Even worse, in the event that something happens and you need to get rid of the house, you can have a huge debt that continues to accrue, and even bankruptcy might not be able to eliminate.

                  Also, HOA's sometimes hassle and micromanage residents even MORE than a reasonable landlord would. For example, many HOA's have restrictions on parking commercial vehicles in your driveway, what furniture you can place on your front porch, etc. By contrast, most apartment complexes here provide two free parking spaces per apartment, and you can park any functioning, licensed vehicle--be it a personal car or a work truck. Also, you are free to place whatever furniture you want on your porch or balcony, or even set up a clothesline to air-dry your clothes.

                  Around here, several HOA's require people to paint their air conditioners to match the exterior of the house, or erect a wall around it, heaven forbid people see that you have air conditioning. This is in a desert climate, where almost everyone would have A/C, not someplace like Alaska where maybe it's not too common.

                  I am very happy that when I moved here I decided to get a rental apartment, rather than buy a so-called "condominium", most of which were used apartment buildings that underwent minor cosmetic upgrades anyways. The rent is reasonable, the maintenence has been responsive, and best of all--there is no HOA to deal with!

                  Comment


                    #10
                    If someone wants to live in a restricted community, they should look at one that provides strict covenants. Living under a HOA, along with the fees and politics that go along with it, is sheer folly.
                    All information contained in this post is for informational and amusement purposes only.
                    Bankruptcy is a process, not an event.......

                    Comment


                      #11
                      Originally posted by frogger View Post
                      If someone wants to live in a restricted community, they should look at one that provides strict covenants. Living under a HOA, along with the fees and politics that go along with it, is sheer folly.
                      indeed frogger. but i think it depends on what type of restrictions we are taking about here. i know some can tell you what color to paint your house, put a tent up for kids in your backywards!!

                      we said we would NEVER live in one, and yet, here we are!!! the pro's and con's ...we do like the fact that people must keep up their homes etc. however, we personally didn't want to be "double" taxed..our annual dues are a whopping $125. of course we don't have much but a small tight community. the dues money going to help the community itself, after we all meet and vote...i.e. we helped the family down the road re-paint their house since they couldn't afford it. we have cover dishes and tricky trays and spend the money cutting lawns of some of the elderly etc. so for us, it's worked out great. we used to live isolated up in the mountains, not a neighbor for over 3 miles. so it's kinda interesting to us now.

                      yet, we saw some HOA's with $350 MONTHLY fees!!!! gates, huge expensive pools to maintain...club houses...i guess for some that's considered "perfect" living.
                      Last edited by tobee43; 06-21-2011, 05:57 AM.
                      8/4/2008 MAKE SURE AND VISIT Tobee's Blogs! http://www.bkforum.com/blog.php?32727-tobee43 and all are welcome to bk forum's Florida State Questions and Answers on BK http://www.bkforum.com/group.php?groupid=9

                      Comment


                        #12
                        i just had an additional thought on this articile...it's really odd and i do wonder who's behind such a scare tactic...since the Mortgage Forgiveness Debt Relief Act of 2007 should cover any with a deficiency provided they were insolvent. whether one is in a recourse state or not. so really, i can get the "cottage" business the atty's are drumming up, as a result of all these pending suits, however, many of those in foreclosure whether they went bk or not, if they can prove their insolvency at the time that deficiency was incurred they should be fine. and, if the lender sends out a 1099-A one would except that amount just gets listed on the 982 tax form and should be resolve.

                        however, on the other hand HOA fees, and costs, some taxes, town and city assessments/liens i do understand can become a burden on the already tapped out ex homeowner. i think we will see more law suits directly at the banks for dragging their feet and causing ex-homeowners to incur additional charges which they had no control over accumulating. (especially if they were insolvent at the time).

                        should prove to be an interesting subject matter as time goes on.
                        8/4/2008 MAKE SURE AND VISIT Tobee's Blogs! http://www.bkforum.com/blog.php?32727-tobee43 and all are welcome to bk forum's Florida State Questions and Answers on BK http://www.bkforum.com/group.php?groupid=9

                        Comment


                          #13
                          Thanks for the post. Definitely scary.

                          Comment


                            #14
                            Our HOA has served us with a summons to appear in court tomorrow 3/27/12 in regard to past due HOA fees as well as a "new street fee" for a street that was redone after we vacated the property and the banks changed the locks (about $2500 total not to mention court fees and late charges). Hubby spoke with the HOA's lawyer last week and asked if the HOA Trustees had shown him the Hardship Letter we had sent them when we left last year. He said no. Hubby offered a few hundred dollars that we have saved up, lawyer said he would run it by the Trustees to see if we can work out a settlement of some kind prior to court.

                            I hope more folks write in about this and give us their stories, as I think we are still at the beginning of this nightmare with banks delaying foreclosures and HOA's coming after broke ex-neighbors. As it stands for us, we haven't made a payment on that house in 2.5 years and there has been no official notice of a sheriff's sale or anything like that.....meaning our names are still on that damn deed!

                            I will update you all on what happens tomorrow. Thanks for all the support!

                            Comment


                              #15
                              Originally posted by phsunny View Post
                              Our HOA has served us with a summons to appear in court tomorrow 3/27/12 in regard to past due HOA fees as well as a "new street fee" for a street that was redone after we vacated the property and the banks changed the locks (about $2500 total not to mention court fees and late charges). Hubby spoke with the HOA's lawyer last week and asked if the HOA Trustees had shown him the Hardship Letter we had sent them when we left last year. He said no. Hubby offered a few hundred dollars that we have saved up, lawyer said he would run it by the Trustees to see if we can work out a settlement of some kind prior to court.

                              I hope more folks write in about this and give us their stories, as I think we are still at the beginning of this nightmare with banks delaying foreclosures and HOA's coming after broke ex-neighbors. As it stands for us, we haven't made a payment on that house in 2.5 years and there has been no official notice of a sheriff's sale or anything like that.....meaning our names are still on that damn deed!

                              I will update you all on what happens tomorrow. Thanks for all the support!
                              I see that you have vacated the house, and the bank has taken possession, as evidenced by their changing the locks and securing the premises. I do not see if you filed for bankruptcy, or if you did file, whether you surrendered the house in bankruptcy. If you did not file, then you have that (the threat of possibly filing for bankruptcy) to use as leverage in your negotiations with the HOA and their collection law firm. If you already filed, then you are probably out of luck, because HOA dues, fines, fees, and special assessments which accrue after the petition filing date are not discharged.

                              In any case, you might consider fighting the lawsuit on the grounds that the bank has taken possession of the property by virtue of the fact that they have changed the locks and secured the premises. Take pictures of the notice posted on the house showing that the mortgage servicer has taken possession of the premises. It could be argued that the only reason that the lender has not foreclosed on the property--despite the fact that they know the house is vacant, and that you no longer have any interest in it--is in order to minimize their costs and maximize your losses. They cannot on the one hand tell you that they own the property and that for you to enter is trespassing, while on the other hand saying that since your name is on the deed you should be responsible for HOA and upkeep costs.

                              Comment

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