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In Florida, if the HOA forecloses on a property, is the borrower

responsible for the entire loan(s)?...
In Florida, if the HOA forecloses on a property, is the borrower responsible for the entire loan(s)?
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6/19/2013
ScottyMacESQ
ScottyMacESQ, Lawyer
Category: Real Estate Law
Satisfied Customers: 17,276
Experience: Licensed General Practice Attorney, Texas
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ScottyMacESQ :

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ScottyMacESQ :

The borrower would continue to be responsible for any loan that is secured by the property, unless that borrower gets the loan discharged in bankruptcy. If the loan is a first mortgage, that lien would have priority over an HOA lien that would be foreclosed, but 2nd mortgages, home equity loans, etc... would not, and could be wiped out by a HOA lien foreclosure. But even if the lien is gone, the underlying debt is not. In essence, the loan would become an "unsecured" loan at that point, but the lender could still go after the borrower.

ScottyMacESQ :

Again, only a bankruptcy would completely release liability.

ScottyMacESQ :

Now in the foreclosure, the HOA could only take the amount of the fees, etc... due, and anything else would need to be applied to the other liens, so the amount owed might be less. But liability would not go away.

Customer:

Thank you. Just to make sure I understand: If the HOA forecloses, the first mortgage will still be paid? The HOA will receive remaining funds and any second or HELOC is left in the cold?

ScottyMacESQ :

The first mortgage lien would still exist. That means that even after the HOA forecloses, the first mortgage holder could foreclose to protect its interests. The HELOC, etc... would not have the lien (so could not foreclose subsequent to the HOA) but could still pursue the borrower.

Customer:

Sorry, I'm confused. If the HOA already sold the property how can the first lender sell the same property?

ScottyMacESQ :

There are liens on a property. A lien is a secured interest in the property. For an HOA to foreclose, they have to have a lien. Now there could be a lot of liens on the property, such as a first mortgage, second mortgage, mechanics liens, etc... If the HOA forecloses on the HOA lien, every other lien will be wiped out, making those debts unsecured. But the first mortgage will still have a lien, so they could foreclose on the property again.

ScottyMacESQ :

So when the HOA forecloses and someone purchases it, they purchase it subject to the first mortgage, but not the other liens.

ScottyMacESQ :

If they can pay off that first mortgage lien, then they can have the property free and clear.

ScottyMacESQ :

But the other lien holders are "out in the cold" in terms of having a secured interest. THey can still go after the debtor for the debt, but the debt is unsecured at that point.

Customer:

I understand what liens are but I just don't understand how two entities can sell the same property. If the HOA forecloses on their lien and the property sells at foreclosure auction how can the first lender take the property from the new owner to foreclose their lien?

ScottyMacESQ :

Because the HOA lien is filed after the first mortgage lien. Under the law the HOA foreclosure will wipe out everything except for the first mortgage lien. So the property passes to the new owner, but with one lien (the first mortgage lien). If the first mortgage is not paid, the lienholder can (not necessarily will, but can) excercise its rights to foreclose.

ScottyMacESQ :

So there can be two foreclosures on the property, precisely because the first foreclosure does not wipe out the first mortgage lien.

Customer:

Okay. No one would purchase a property with a huge first mortgage lien. So is it correct to assume it's highly likely to revert to the HOA? And the HOA could either pay the lien or become subject to a first lien foreclosure, correct?

ScottyMacESQ :

Yes, that is likely (depending on the balance of the loan for that first mortgage), and yes, they would either pay it or it would still be subject to that first mortgage foreclosure.

Customer:

Got it. Thank you for all of the explanations!

ScottyMacESQ
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Satisfied Customers: 17,276
Experience: Licensed General Practice Attorney, Texas
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