Lender Must Foreclose in Reasonable Time After Mortgage Default But Owners Liable for HOA Fees Until Then

Two partners purchased an expensive condominium in Scottsdale for an investment. Due to the failing economy and the slowdown in their business, they have been unable to make the condominium payments and defaulted on the mortgage for seven months. They know that under the Arizona anti-deficiency law they have no personal liability for any deficiency on the mortgage loan, but they also know that they are personally liable to our HOA for the monthly fees of $1,400 as long as they own the condominium. They want to give the condominium back to the mortgage company, or lose the condominium at foreclosure. The mortgage company, however, will not accept a deed in lieu of foreclosure, nor will the mortgage company tell them when they will institute foreclosure proceedings. Can they make the mortgage company foreclose on the condominium so that they are no longer liable for maintaining the condominium, including payment of the $1,400 monthly HOA fees?

A phenomenon of this current real estate market is that mortgage lenders are not “racing to foreclosure,” especially on high-end homes. The reason is that, after the foreclosure sale, the mortgage lender will not only have another REO (“Real Estate-Owned”) “dog” on their balance sheet, but the mortgage lender will be responsible for the HOA fees, landscaping, pool and other repair/maintenance costs, until the home sells. Under Arizona law, a mortgage lender is only required to institute foreclosure proceedings within six years of the default on the mortgage loan, i.e., when the borrower stops making payments. Therefore, although highly unlikely, unless they were to do a “short sale” or otherwise sell the condominium, they could be required to maintain the home, including the $1,400 monthly HOA fees, for the next six years.


Tags: , , ,

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: