There is a new trend in Real Estate – third parties are exercising some muscle in exerting influence on real property.  In some states, Homeowner Associations can initiate foreclosure and extinguish all liens on a property, take possession and evict owners while mortgage holders and investors are helpless.  Presently, in over 21 states, HOAs and COAs have extended rights in their collections practices as new state statutes have taken effect over the past several years.  While this is an overt concern, most HOAs and COAs are in close communication with the owners.

It is good that HOAs and COAs are in close communication with owners.  The dialog is an important one to have.  Whether you manage your Association via a property management service or not, the buck stops with the owner.  There is another risk looming on the horizon, however.

Utility liens are the “next big thing” in Real Estate activity.  More and more municipalities are starting to flex their muscles over water, sewer and solid waste.  In some states, delinquent accounts are placed in lien status and these liens can be sold to private investors.  These are lucrative investments for the purchaser because they can carry a guaranteed return of up to 18% per annum!  Liens that are sold remain against the property, although the municipality has been paid.  The difficulty is in the added layer of satisfaction necessary to remove these liens from the property (including the premium interest component).

Municipalities that keep their own liens often retain priority status as well.  This means that should the Municipality take legal action to foreclose on a property, their lien is in first position – ahead of any mortgage loan or deed of trust!  Because the municipality usurps senior position, if the property is sold at auction (after proper Notice, of course), any purchaser received that property free and clear of liens – leaving the former owner (and any lender) cut off completely.  Of growing concern, however, is that in certain states, the priority given to the municipality is conveyed to the purchasing investor also!  This means that even though the lien was sold, the new owner has the same rights as the municipality in the eyes of the law.  Worse, unless specific arrangements are made, the account for the utility service is in the tenant’s name and the owner may not easily receive status of the account!

As is true with many subjects, prevention is better than cure.  Maintaining a close watch on your property is valuable to prevent heartburn downstream.  It is important to maintain a positive relationship with your tenant and be wary of warning signs that may indicate trouble in the future.

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