Q. I live in a small condominium complex. Two units are in foreclosure by the mortgage lender. Whose responsibility is it to pay the HOA fees on these units while they are in foreclosure: the HOA, or the mortgage lenders that own these units while in foreclosure? Currently, the other homeowners in the community are being charged extra assessments to cover the loss of income from these two units in foreclosure.
Under North Carolina law, only the “record owner” of a condominium is personally liable for payment of the HOA assessments that accrue while he, she, or it owns the unit.
There is a common misconception that mortgage lenders are responsible for unpaid assessments when the unit owner doesn’t pay them before, during, or after the lender’s foreclosure.
The reality is that the lender is only responsible for payment of assessments if and when it takes title to the unit upon completion of the foreclosure.
Even if the lender takes title to the unit, it will only be responsible for payment of assessments accruing after the date its foreclosure deed is recorded. The lender is never responsible for payment of past-due assessments accrued by the former owner.
One possible reason for the misconception about lenders’ liability for assessments is due to the fact that some states (Florida, for example) have “super lien” statutes.
These laws require a foreclosing lender to pay some portion of the past-due assessments, which are usually capped at six or twelve months’ worth of dues or a percentage of the total HOA debt, whichever is less.
North Carolina has no “super lien” laws, so the past-due assessments left owing by the former owner after a mortgage foreclosure are typically written off by the HOA as an uncollectible bad debt.
Uncollected assessments have a greater impact on smaller communities, since the bad debt on one or two units can represent a significant percentage of the budgeted income for the HOA. Unfortunately, this can sometimes result in higher assessments for the other owners as you have reported, or a cutback in services or amenities, if the HOA does not have sufficient reserves to bridge the financial gap.
While the HOA can try to track down the former owner and file a lawsuit against to collect the debt, it’s usually not cost-effective and is not recommended unless the HOA has reason to believe the former owner has sufficient assets.