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Barrister
Barrister, Lawyer
Category: Real Estate Law
Satisfied Customers: 38213
Experience:  17 years real estate, Realtor. Landlord 26 years
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I received a notice of trustees sale for past due assessment

Customer Question

I received a notice of trustees sale for past due assessment lien for homeowners association dues that were not paid. The notice says that the property is being sold subject to the 90 day right of redemption after the sale. Further, notice to potential bidders; if you are considering bidding on this property lien, you should understand that there are risks involved in bidding at a trustee auction. The potential bidders; you will be bidding on a lien, not on the property itself. My question is; are bidders buying the property or the HOA lien? Can we still sell our home during the redemption period. The Davis Sperling laws and civil codes don't address if we can sell during the redemption period. Will our fist mortgage stay intact during the 90 day redemption period as well?
JA: Because real estate law varies from place to place, can you tell me what state the association is in?
Customer: California
JA: Has any paperwork been filed?
Customer: What type of paperwork? The HOA has sent us a the Notice of Trustee Sale as I described.
JA: Anything else you want the lawyer to know before I connect you?
Customer: That is all at this point; I think.
Submitted: 11 months ago.
Category: Real Estate Law
Expert:  Barrister replied 11 months ago.

My question is; are bidders buying the property or the HOA lien?

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They are buying the property, subject to any mortgage since the HOA lien would be in a lower priority to the mortgage.

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Can we still sell our home during the redemption period.

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Yes, you will just have to pay off the lien and any mortgage out of the proceeds of the sale.

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Will our fist mortgage stay intact during the 90 day redemption period as well?

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Yes, the property is sold subject to the first mortgage. So if you owe $200K on a mortgage and $5K for a HOA lien, the property has to sell for at least $205K for someone to become the legal owner. Then that is subject to your right of redemption where you can come in and pay off the final bid amount plus any auction fees and redeem the property.

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thanks

Barrister

Customer: replied 11 months ago.
During the 90 day redemption period - when you say pay off the bid amount; does that mean we have to pay any excess they bid over the HOA lien amount? If so, who gets the excess they bid over the HOA lien amount over (5K in your example); if the bid amount is more than the HOA lien amount; then what happens; do we have to pay the overbid amount as well?
Customer: replied 11 months ago.
Are you still there?
Expert:  Barrister replied 11 months ago.

Just a minute please

Expert:  Barrister replied 11 months ago.

when you say pay off the bid amount; does that mean we have to pay any excess they bid over the HOA lien amount? If so, who gets the excess they bid over the HOA lien amount over (5K in your example); if the bid amount is more than the HOA lien amount; then what happens; do we have to pay the overbid amount as well?

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Lets say that there is a $200K mortgage and a $5K lien.. The fees for the sale are $2K and the house is worth $275K.

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If someone bids it up to $207K, that is what you would have to pay to redeem the property from the sale.

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thanks

Barrister

Customer: replied 11 months ago.
That is surprising (that we would have to pay $207K to redeem) I thought that during the 90 day redemption period we could redeem for past due amount to the HOA only (plus legal fees etc) and any overbid would be returned to the bidder (overbid would be held in trust by the HOA or in escrow by the outside bidder or something to that effect for the 90 day redemption period). Also, that although an HOA lien sale can take place, but the title can't transfer until after the 90 days and we can redeem for only the HOA lien amount (past due assessment amount). After redeeming within the 90 days redemption period (if we don't redeem by paying the lien amount), then we can transfer title to a new buyer - if we have one. Further, when we redeem, any over bid at the HOA lien sale goes back to that bidder when we redeem, as the First (Senior Mortgage) remains intact to us during the redemption period; we only lose the Senior Mortgage if we fail to redeem within the 90 day redemption period. Am I misunderstanding any/all of this?
Expert:  Barrister replied 11 months ago.

I was assuming that anyone bidding on the property would be paying off any first mortgage on the property because in order to potentially actually get the property, they have to satisfy any outstanding debts owed on the property. So if someone bid the $5K just for the lien amount, then they would be taking the property subject to your existing first mortgage of $200K in my example. Then if the $200K mortgage doesn't get paid, the first mortgage holder would then foreclose and the property would be sold again.

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So if the property goes up for sale and it is worth more than what is owed, then it is likely that the bank will bid up to its loan amount to protect its interest and any private bidder is going to have to bid over that amount in order to purchase the property. And the HOA wants to get paid, so it is likely that any bid would be at least what is owed on the mortgage and the lien.

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No one will just want to buy a lien, they want the property.

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So yes, any overbid is returned to the bidder...but if they bid $207K to get the house clear subject to your ROR, then that is what you will have to pay to upset the sale.

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That is why it is pretty rare for an owner to be able to upset the sale because unless they are coming into a lot of money soon, then they likely won't have enough to pay off the property completely to reclaim it.

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But if the property went up for sale and it only brought the $5K for the lien, then yes, you would just have to pay that plus the $2K for the auction costs and any interest.

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You would also be potentially liable for any repair costs paid by the purchaser that were reasonably necessary for the preservation of the property (Barry v. OC Residential Properties, LLC, 194 Cal.App.4th 861 (2011)). The purchaser at the foreclosure sale may pay for maintenance and repair work if the property is in need of repair, and the repairs made are necessary to prevent further damage to the property.

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Then, if you chose to redeem the property, you must reimburse the purchaser for those expenses.

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thanks

Barrister

Customer: replied 11 months ago.
Thank you for your reply; so it sounds like we have a lot to consider.
Expert:  Barrister replied 11 months ago.

You are very welcome. Happy to help any time, even if the news wasn't great...

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If you feel your original question and any related follow ups have been answered, I would very much appreciate a positive rating on the answer I have provided as that is the only way I receive credit for my work. If you have a new question the JustAnswer folks require that you start a new question page, but you can request me by putting "For Barrister" in the caption and they will get it to me.

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Thanks much

Barrister