With the traumatic rise of homes falling into foreclosure and many homeowners filing for bankruptcy, it may seem like the current financial crisis is a storm with no end in sight. For many Arizona real estate law clients at the Heckele Law Firm, a question that often comes up is the consequence of not paying Homeowners Association (HOA) assessments. As if the burden of mortgage payments and associated late fees weren’t enough, the additional liability of HOA dues adds further financial stress to an already tense situation. While the consequences of not paying your assessments can range from a lawsuit and lien to foreclosure, there are several options available to you to deal with your unpaid HOA assessments in the face of impending foreclosure and/or bankruptcy.
HOA Liens & Foreclosures
Just like your mortgage holder, an HOA may place a lien against your home for unpaid assessments, late fees, and collection fees under Arizona Revised Statutes (A.R.S.) § 33-1807. However, under that same statute, an HOA can only foreclose on your home if you are either (a) more than one (1) year overdue on assessments, or (b) you owe more than $1,200 in assessments.
A couple of important things to note when it comes to HOA foreclosure:
1) The $1,200 minimum applies only to your assessment principle and is exclusive of reasonable collection fees, late penalties or attorney fees.
2) Any monies paid by a homeowner are to be first applied to the principal balance and then to any unpaid fees or penalties
3) The HOA must provide you with a written statement showing any unpaid assessments on your property with 15 days of your written request.
4) Unlike a bank, the HOA must bring a lawsuit against you to initiate foreclosure; a lengthy process, giving you more time to bring your debt to good standing.
Some Arizona homeowners in default are dealing with multiple liens from more than one lender in addition to their HOA. With real estate values as low as they are, your house is likely worth a lot less than the balance owed on your mortgage. Some homeowners incorrectly assume that the difference at foreclosure will effectively cancel out any HOA recourse and so they stop paying their dues.
While it is true that foreclosure will wipe out an HOA lien held against the property, it is not the only recourse HOAs have to recover funds from you. Even after foreclosure, most Covenant, Code & Restrictions (CC&Rs) agreements allow the HOA to bring further legal action against you personally, which may include garnishing your wages, tax return, and bank accounts.
If your HOA or former HOA has initiated legal proceedings against you, the attorneys at The Heckele Law Firm may be able to assist you. Mention this blog article for a free consultation.
Your HOA responsibilities in the face of Bankruptcy
Yes, filing for Chapter 7 or Chapter 13 bankruptcy may relieve you of HOA debts before the filing date, but typically not those assessments levied afterward. If you do declare bankruptcy before foreclosure is finalized it may actually do more harm than good, as your lender will have to lift the automatic stay to proceed with foreclosure. This delay will prolong the amount of time you’ll be responsible to pay your HOA dues.
In addition, using bankruptcy to delay the foreclosure process may be a dangerous proposition in Arizona; courts see this all the time and have a “zero tolerance” for this kind of “frivolous” behavior. You may be faced with lawsuit brought against you by the Department of Justice for abusive filing. So, before filing bankruptcy blindly, those suffering from financial obligations should consult with an attorney to understand their options and to avoid potentially harmful missteps.
In the wake of the latest financial crisis, people are faced with myriad legal questions with respect to what their best options are. The attorneys at The Heckele Law Firm are dedicated to helping our clients make sound legal and business decisions. Our goal for clients is to weather the storm, because clear skies are up ahead. If you need some help navigating your life, please give us a call.
As anyone familiar with the old adage well knows, life throws us curveballs that we can’t anticipate or predict. While thinking about our final days isn’t a subject we don’t often take time to think about, it is something that we have to plan for. Life is uncertain. Having an estate plan isn’t only for the wealthy or elderly -- everyone should have one.
What is estate planning?
Estate planning is commonly thought of as a final will, but there’s actually a lot more to it than that. Your estate plan can also include a trust agreement for your assets, as well as financial, tax, business, and medical plans in the event that you become unable to make those decisions yourself or pass away.
Why do I need an estate plan?
There are many people who don’t see the necessity of an estate plan and put it off or refuse to make one altogether. Ultimately, when something happens, this can be a major mistake. If you become unable to make your own decisions, a judge may appoint someone to handle your personal care or assets. If there’s disagreement about how those decisions are made, this process can become a lengthy and expensive one for everyone involved. Worse, if you pass away without an estate plan, your assets will be used first to repay creditors and then your relatives, even if they may not be your first choice of beneficiaries. If you don’t have living family members, the state may even claim your assets.
Even if you don’t own a lot of property or investments, you should ask yourself, “is it important what happens to me in a medical emergency or what becomes of my possessions and accounts in the event of my death?” This lies outside your control if you fail to make an estate plan.
What makes up my estate?
Your estate includes all of your assets including debts. Included in this are your:
Your estate will be valued as the “fair market value” of your properties after subtracting any remaining debts, which includes credit cards, loans, mortgages, liens, etc. It is important to plan around these debts because they will affect the ultimate worth of your estate after your death. In 2013, estates under $5.25 million are exempt from the taxation. Amounts above that are taxed up to a top rate of 40%, again something to keep in mind when planning your estate.
How can an attorney help me with estate planning?
A lot of questions directed toward The Heckele Law Firm have to do with strategies for writing a will, assigning a health-care proxy (a living will), and assignment of a power of attorney. These documents assure that your family and financial goals will be met after you pass away or in the event that you become incapacitated or unable to make financial and healthcare decisions for yourself.
An attorney can help you strategically plan for the distribution of your assets, name a responsible party in the event you become unable to make legal decisions and will help you make a plan to execute your last wishes.
When should I update my estate plan?
You should occasionally review your estate plan or whenever a major life event occurs. Ultimately, the estate planning process is one that is subject to change and may evolve. It may be important to see your attorney again as estate law changes, your assets change, or even the important people in your life change.
This post is a general review of the factors involved in estate planning and should not be relied upon as legal, tax, or financial advice. If you have questions about making your own estate plan, consider talking to the attorneys at The Heckele Law Firm, P.L.L.C. Our experienced, knowledgeable group of legal professionals can guide you through the estate planning process as it pertains to your own personal situation.
CONDOMINIUM & HOME OWNERS ASSOCIATIONS
The firm’s practice is regionally based serving all of Southern Arizona. As a client of the firm, your Board will receive free legal updates on the significant changes in the law affecting community associations. We also meet with the Board once a year at no charge for a general review.
The Condo & HOA Law Group’s legal practice is tailored to representing associations and provides such services as:
ALTERNATIVES TO FORECLOSURE IN ARIZONA
In the wake of the latest real estate tsunami, survivor homeowners desperately cling on to the flotsam of bad mortgages and declining home values, where each month they are battered by yet another wave of payments. The rescue ship of economic recovery is nowhere to be seen, hope fades, and these survivors give in to a suffocating fate – foreclosure.
Although many survivors believe that their fate is predetermined and foreclosure imminent, the reality is that there are several alternatives to foreclosure that may apply to distressed homeowners. This article will explain what some alternatives to foreclosure are, and what legal protections may serve as a life preserver for some survivors. To begin with, however, it is important to understand some of the basics of foreclosure.
In Arizona, when a buyer of real estate seeks to purchase a property he or she, in most instances, take out a bank loan (commonly referred to as a mortgage). In such instances, the lender (Bank) will require the borrower to sign a promissory note (“Note”) which evidences the borrowers promise to pay back the loan according to the terms set forth therein. The lender will also require a borrower to put up the property as collateral for the loan, and require them to execute a deed of trust in its favor, which is recorded in the County recorder’s office in order to give notice to the world that a lien exists on the property. A deed of trust is the most commonly used instrument in Arizona, and differs from a mortgage in that it always involves at least three parties, where the third party (a “trustee”) holds the legal title. In contrast, in the context of mortgages, the lender gives legal title directly to the borrower.
The Note recites the “rules” the borrower must abide by and which, to an extent, the trustee enforces by way of the deed of trust instrument. If the borrower breaks any of those rules, it typically results in a “default” of the terms of the agreement, allowing the creditor to exercise any rights it may have, as outlined in the Note and/or deed of trust. The most common event of default is the borrower’s failure to pay in accordance with the terms of the Note. For that reason, trust deeds typically contain (1) an acceleration clause and (2) a power of sale clause. The acceleration clause allows the creditor to call the entire loan balance immediately due and payable upon an event of default. The power of sale clause authorizes the trustee to proceed with foreclosure without court supervision (judicial foreclosure), and to sell the property by trustee’s sale.
The analysis seems pretty simply – if you don’t pay your mortgage you are going to lose your house. Generally speaking this is true. Notwithstanding, there are several alternatives to foreclosure available to many home owners. In order of best to worst (in my opinion) those alternatives are as follows: (1) refinance; (2) loan modification; (3) short sale; (4) deed in lieu of foreclosure; and (5) bankruptcy. Of course, not all of those options are available to homeowners.
For example, it is pretty difficult to refinance your house when it is worth (substantially) less than what you purchased it for and when, as the case may be, your credit has taken a hit during this economic downturn. In order to qualify for loan modification a homeowner typically must (a) occupy the property, (b) be employed, and (c) be able to show some economic hardship. Additionally, a short sale (selling your property for less than what is owed on the Note) is certainly not automatic; particularly if you have more than one mortgage on your property where the second lienholder is unwilling to compromise and accept less than what is owed, or mortgage insurance. And, a deed in lieu of foreclosure also often has certain prerequisites including, among other things, attempting to sell the property first.
If you are a distressed homeowner and want to avoid foreclosure, certain alternatives may be available to you. Determining which option(s) you qualify for and, more importantly, which one(s) make sense for you requires some analysis; each alternative may have detrimental legal, tax and credit consequences. In some instances, it may make most sense simply to allow the foreclosure to proceed. In other instances, typically those in which a homeowner is not protected by the anti-deficiency statutes of Arizona (A.R.S. §§ 33-729(A) and 33-814(G)), it may be that any alternative is better than foreclosure.
Whatever the case, it is important to know that you do not have to “go down with the ship.” If you are interested in exploring what alternatives to foreclosure are available to you, I encourage you to seek the advice of an experienced real estate attorney who can help steer you to financial freedom.