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 N.C. 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 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, it will only be responsible for assessments accruing after its foreclosure deed is recorded. The lender is never responsible for paying past-due assessments accrued by the former owner.
One possible reason for the misconception about lenders’ liability is that some states (Florida, for example) have “super lien” statutes. These require a foreclosing lender to pay some portion of the past-due assessments, which are usually capped at six or 12 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 by the former owner after a foreclosure are typically written off by the HOA as an uncollectible bad debt.
Uncollected assessments have a greater impact on smaller communities. This can sometimes result in higher assessments for the other owners, or a cutback in services or amenities, if the HOA doesn’t have sufficient reserves on deposit to bridge the financial gap.