Question: Thank you for your recent column on the right of an HOA to foreclose on a home for nonpayment of $3,000 in delinquent HOA dues. In your example the house was owned free and clear, and was valued at $185,000. My question is, after the foreclosure sale, would the HOA get the entire $185,000 foreclosure sale proceeds, or would the HOA only get the $3,000 delinquent HOA dues, and the homeowner would get the remaining $182,000?

Answer: There are sophisticated investors who daily look at foreclosure notices that schedule foreclosures of homes. These investors then compare the value of the home to the amount owed at the foreclosure sale. If there are potentially large profits in buying the home at the foreclosure sale, which is usually scheduled on the “courthouse steps,” these investors (or their representatives on cell phones) will attend the foreclosure sale to try to buy the home. In a foreclosure sale of a $185,000 home for $3,000 in delinquent HOA dues, the HOA will start the bidding at the amount of the delinquent HOA dues, plus foreclosure costs such as attorneys’ fees and title fees. Therefore, the total bid by the HOA at the foreclosure sale could be $6,000. In light of a potential profit of more than $150,000 on a subsequent sale of the home, there would probably be a bidding war among several investors at the foreclosure sale. If the winning bid by an investor is $100,000, that investor would first pay the $6,000 owed to the HOA. The homeowner would get the excess proceeds of sale or approximately $94,000. The investor could evict the homeowner who is now a tenant, and then sell the home as quickly as possible.

Note: Several years ago a lady lost her free and clear Gilbert home worth $220,000 because she hadn’t paid $8,600 HOA dues and costs. This lady had been severely depressed because of the death of her mother, and hadn’t responded to any paperwork from the HOA for many months. At the foreclosure sale a real estate broker outbid other investors and bought the home for $50,000. When the real estate broker served eviction paperwork on the lady to start the eviction proceeding, the lady contacted the Arizona Republic and Three On Your Side. The real estate broker did not want bad publicity, so the real estate broker sold the home back to the lady for $50,000.

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