Condos, HOA dues, foreclosure and eviction

A friend was recently impacted by a Florida law that led me to think about condos, home owner association (HOA)  dues, and what happens when HOA dues are not paid by a condo owner, and who is responsible for paying HOA dues in the event of a foreclosure. My friend was a tenant in a condo in Florida. Apparently the owner of the condo was collecting rent from my friend the tenant and not paying the HOA association the dues owed. He then received a letter from the HOA telling him to start paying them the rent directly to make up for the lost dues. He was then threatened with eviction by his landowner.  So what to do? Resisting my suggestion that moving out, then a Molotov cocktail thrown into the kitchen would solve the problem for all involved, we did some digging. It turns out that Florida has a state law, FS 718.116, which allows the HOA to collect the rent from the tenant to offset past due HOA dues. The law also protects the tenant who is making their rent payments to the HOA from being evicted by their landlord for non-payment of rent. The law also says that if the HOA makes this demand to the tenant, and the tenant does not pay the HOA, the HOA, not the landlord, can evict for non-payment of rent. We are not lawyers and know Florida law only thanks to effective use of search engines, so this is not legal advice at all. This nugget is directed to the several California clients we have who do own condos in Florida. The message to them is clear- keep current on your HOA dues or risk having your rent confiscated by the HOA. What about California? We have heard anecdotally that HOA associations are using the Florida model on tenants to try to get past due HOA assessments. California does not have the same rule as Florida, although as soon as this is published some bright bulb in Sacramento will read this and Shazam! It will be the California rule soon enough. As of spring, 2012, California HOA associations cannot force a tenant to pay them rent directly. Their leverage is against the owner, not the tenant. To enforce their right to collect, the condo association has the right to foreclose. Foreclose? Yes, just like your typical, everyday too big to fail bank. The only difference is hopefully the HOA’s paperwork is more in order, and they actually have an interest in what they are foreclosing on, but I digress. The HOA foreclosure process is the same non-judicial foreclosure process used for mortgage foreclosure. The HOA, if it completes the process, retains the right to then evict the tenant and sell the property to satisfy the claim. The procedure is set forth in Civil Code Section 1367, et seq. After the foreclosure takes place, the former owner has 90 days to reimburse the HOA for all past due fees, assessments, costs, etc. or the HOA can sell the property. If the property is rented, the existing tenant’s lease can be honored and the rent paid to the HOA directly. Another problem faced by a client is this. She was facing foreclosure and moved out of her condo. After she moved out, she filed bankruptcy and moved on with her life. The too big to fail bank doing the foreclosure took its own sweet time completing the process, and the paperwork was completed, and the new owner moved in, about a year after the client moved out. The HOA then sent a collection letter for past due HOA fees for the year long gap. The client protested, correctly we thought, that the matter had been discharged in bankruptcy, so go away. We did some digging around, and found out this. There’s a wrinkle in bankruptcy law. Apparently the unpaid HOA dues which accrued prior to the bankruptcy are discharged; no issue there. But the clock starts again on the HOA dues the day after the bankruptcy filing and continues to run until title is changed. Because this debt arises after the bankruptcy discharge, it stays with the debtor and can be collected by the HOA, and is not discharged. Lesson – if you are in foreclosure on a property with an HOA assessment, if you are thinking of moving out, make sure you file a “deed in lieu” on the property to get your name off of it. This way, the HOA fees are a problem for the too big to fail crew, not you.