HOA | Underwater Mortgage Homeowners Beware of Association Fees

It is a sad fact of life, especially here in Florida, that many homeowners are underwater with their mortgages.   For those of us that might not be familiar with the terminology, an underwater mortgage is one where the amount that the borrower owes the lender on the mortgage is greater than the value of the mortgaged property.  For one reason or another, many of these underwater borrowers could not make their monthly mortgage payments or pay their Homeowners Association Dues.  General wisdom used to be that if you are underwater and want to walk away from your property, all you had to do was make a deal with your bank and you would be able to walk away free and clear (relatively speaking) even if you were behind on your Homeowners association dues.   This was because back in the day before the concept of falling property values was a reality, most Homeowners Association Covenants stated that past due amounts to the Homeowners Association were tied to the property.  So back in the day if you had a mortgage on your property and had past due Homeowners Association dues and you wanted to sell your property, it was a simple process of taking the proceeds of the sale and paying off your mortgage, paying off your Homeowners Association and then pocketing the rest of the money.  Even if a property was in foreclosure and was sold at a foreclosure sale by the mortgagee, the mortgagee would take the proceeds of the sale up to what it was owed, the Homeowners Association would take what it was owed and the surplus would be distributed as needed.  This practice was only possible because for most properties, the value of the property was greater than the amount owed on the mortgage.

This entire equation shifted once property values started falling.  So even if there was a foreclosure sale, the proceeds of the foreclosure sale might not be enough to cover what is owed to the mortgage holder much less the Homeowners Association.  Homeowners Associations, realizing that they might not be paid at all in situations like these, have started to hold homeowners personally responsible for past due amounts.  So even if you’re foreclosed upon by your bank and they take your house, your Homeowners Association could come after you past due amounts if you haven’t been keeping up with them.