I agree with Attorney Salcinas - you can maintain control over your financial situation by being proactive and initiating a short sale. In a short sale, so long as your association dues are less than 1 year past due, your lender should pay them in a short sale. It sounds like the property is your primary residence - in a short sale, the lender may foregive the deficiency balance if you can demonstrate a financial hardship and you may be excused from paying federal income tax on the debt you are excused from repaying.
Very often, I see underwater homeowners such as yourself deciding to simply walk away from their underwater property. With some help from a qualified attorney and a qualified realtor, you may be able to short sale your property, end your financial obligation to repay any past due association dues and any deficiency balance - and under certain circumstances, you may be eligible to receive a short sale incentive pament (typically at least $3,000).
The worst thing you can do is NOTHING. I urge you to seek assistance from an experienced real estate attorney.
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No. The actions of the HOA will not implicate the Mortgage Debt Forgiveness Act. However, if you were to obtain a bankruptcy discharge where the mortgage debt is discharged, that would eliminate your tax exposure and would potentially also discharge whatever excess you may owe to the HOA or to credit cards or medical bills. If you are a good Chapter 7 candidate, this is a route that gives you control over the timing of how you handle disposing of your debts and frees you frm the control of the mortgage company. Do yourself a favor and consult a bankruptcy attorney.
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I agree with all answers because you need to be ready to either file bankruptcy or present a short sale, and perhaps both, but with proper timing. To that I add - many attorneys who do bankruptcy know both angles, and also intervene in a state foreclosure action should one be commenced by the association or the mortgage lender, in order to slow the process down and keep options open. In any event, it is also likely in your best interest to take all efforts to get the association paid. Whatever the dues are, they must be less than what you would expect to pay for rent somewhere. Once you stop paying a HOA or COA, they drive race car through the foreclosure process compared with the tortoise pace of many mortgage lenders.
The law is complicated and although the facts expressed may seem to be all that is relevant, there may be many other important facts to consider. Also, the law is constantly undergoing change, so what may be correct today, may not be accurate tomorrow. Only a full consultation with an attorney experienced or knowledgeable in the specific legal subject matter is likely to result in the optimal course of action. My practice has entailed more than a 30 year span of many real estate, personal property, and bankruptcy issues. Find out more about me at: FloridaPropertyLitigation.com.