How to Get an HOA Lien Payoff
If the title report shows a lien on the property filed by the HOA (Homeowner’s Association) for a face dollar amount reported on the lien copy, what is the best way to find the payoff? This is a common question our clients face during the due diligence process. In some cases, the lien that is worth just a few hundred dollars balloons to thousands. If the buyer of the note asks for reimbursement on just what the recorded copy of the HOA lien states, the buyer will end up losing a significant amount of compensation.
Additionally, when HOA liens are reviewed for note buyers, there are two factors to take into consideration: Safe Harbor limitation on the amount that an HOA can charge and Statute of Limitation (SOL) for enforcement of each HOA lien. As an example, if an investor plans to foreclose on a mortgage in Florida with many HOA liens recorded against the mortgaged property, the HOA can only collect an amount equal to one year of unpaid assessments or 1% of the mortgage, whichever is less, per the Safe Harbor limitation. At the same time, if the HOA lien is recorded in Arizona over three years ago, it is expired and unenforceable.
After an investor correctly applies the SOL and Safe Harbor logic to the review of the HOA liens, only liens that attach to the property should be left. There is a process of validating the HOA liens through a request of an Estoppel Affidavit from the HOA management company or the attorney representing the HOA. An Estoppel Affidavit will have the most current charges to bring the account current which would include interest, penalties and subsequent year charges that should be paid off before the HOA lien is released. ProTitleUSA’s Curative Department is a shortcut for many investors to supervise and coordinate the HOA estoppel requests and payoff generation. The Estoppel Affidavit (or sometimes called Estoppel Certificate) will answer:
- Is this account delinquent or in collections?
- What is the payoff amount if delinquent? [This is very important for investors]
- Do the rules and regulations of the association applicable to the unit require approval by the board of directors of the association for the transfer of the unit? [This is important for fix-and-flip property investors]
- Is there a right of first refusal provided to the members of the association?
- Can the property be rented out and if yes, what is the minimum lease term for rental? [This is important for property investors who plan to use it as a rental]
- Who is the management company?
- What are the dues and frequency of payment?
- What is the maximum penalty for delinquent assessments?
- What is the capital contribution fee, resale fee or transfer fee?
As you may notice, depending on the long term goal of the investor, the questions above might be more or less important to decide on the investment exit strategy.
An interesting fact is that HOAs in Puerto Rico maintain the same process as in all states. Oh, yes, the Estoppel Affidavit is in Spanish. Let me provide a sample of an Estoppel in Puerto Rico below:
Additionally, when HOA liens are reviewed for note buyers, there are two factors to take into consideration: Safe Harbor limitation on the amount that an HOA can charge and Statute of Limitation (SOL) for enforcement of each HOA lien. As an example, if an investor plans to foreclose on a mortgage in Florida with many HOA liens recorded against the mortgaged property, the HOA can only collect an amount equal to one year of unpaid assessments or 1% of the mortgage, whichever is less, per the Safe Harbor limitation. At the same time, if the HOA lien is recorded in Arizona over three years ago, it is expired and unenforceable.
After an investor correctly applies the SOL and Safe Harbor logic to the review of the HOA liens, only liens that attach to the property should be left. There is a process of validating the HOA liens through a request of an Estoppel Affidavit from the HOA management company or the attorney representing the HOA. An Estoppel Affidavit will have the most current charges to bring the account current which would include interest, penalties and subsequent year charges that should be paid off before the HOA lien is released. ProTitleUSA’s Curative Department is a shortcut for many investors to supervise and coordinate the HOA estoppel requests and payoff generation. The Estoppel Affidavit (or sometimes called Estoppel Certificate) will answer:
- Is this account delinquent or in collections?
- What is the payoff amount if delinquent? [This is very important for investors]
- Do the rules and regulations of the association applicable to the unit require approval by the board of directors of the association for the transfer of the unit? [This is important for fix-and-flip property investors]
- Is there a right of first refusal provided to the members of the association?
- Can the property be rented out and if yes, what is the minimum lease term for rental? [This is important for property investors who plan to use it as a rental]
- Who is the management company?
- What are the dues and frequency of payment?
- What is the maximum penalty for delinquent assessments?
- What is the capital contribution fee, resale fee or transfer fee?
As you may notice, depending on the long term goal of the investor, the questions above might be more or less important to decide on the investment exit strategy.
An interesting fact is that HOAs in Puerto Rico maintain the same process as in all states. Oh, yes, the Estoppel Affidavit is in Spanish. Let me provide a sample of an Estoppel in Puerto Rico below:
ProTitleUSA is here to make an investor’s life easier. We launched a service called Lien Validation to verify the payoff for each lien reported against the property. Investors or buyers of the note use the service to have a deeper discount on each lien and receive a proof or back up document for each payoff to satisfy the asset seller that the payoff proof is justified. I suggest to review your due diligence workflow and how this type of service can be leveraged to your advantage.