The Short Sale Trap

For those of you wanting to make a short sale on your house, you’d better keep an eagle eye on your good old Homeowners Association. They’re starting to get pretty crafty in keeping the neighborhood operating budget full.

For homeowners who are suffering through the housing mess and living with underwater mortgages, working out a short sale might help you save some of your retirement nest egg. The banks take a well-deserved loss, but you’re happy because you’ve found a buyer and you’ve escaped your nightmare of a mortgage.

But wait!  Your HOA has superior rights over your bank. If it moves quickly, it can snatch your home and foreclose on it before your short sale can go through. Just about any violation of HOA covenants can make your home a nice grab.  If you were a little behind on dues, if your grass became a little brown during those months you failed to water the lawn, if you got fined for leaving the trash can outside, once you add fines, collection fees, legal fees, late fees and all the other fees that can be conjured up, your HOA can actually claim you owe it tens of thousands of dollars.

Like a rat trap, the HOA springs shut on your pending short sale. You lose, the bank loses, your potential buyer loses.  Ah, but your HOA wins. It gets to put your house on the auction block. Sweet, huh?

Ward Lucas

Author of

Neighbors At War: The Creepy Case Against Your Homeowners Association

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3 Comments

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3 responses to “The Short Sale Trap

  1. jbeth6

    Before I paid HOA fines of $100K, in addition to $80K in attorney’s fees, for the alleged ‘crimes’ of a claimed “unauthorized” flower bed border and having an invisible therapeutic jacuzzi ( visible on google earth and by helicopter), I would have thought the threat of HOA viciousness and greed was over-stated. Now I think that even this illuminating post greatly underestimates the damage that HOAs can inflict on your finances. Without batting an eyelash or a single iota of good intention, morals or compassion. They screw you because they can.

  2. p

    Maybe you shouldn’t put this out there. You are giving board members ideas.
    The HOA cannot sell the house without the owner signing off on their short sale.

    • Actually, there are thousands of cases where homes are taken and auctioned off with the owner’s signature. It’s only the mortgage companies which (theoretically) have to obey the law.

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