A homeowners’ association (HOA) is effectively the governing body of a real estate subdivision that enforces the covenants, conditions, and restrictions (CC&Rs) of that subdivision. The CC&Rs dictate the rules that HOA members must comply with. For example, the CC&Rs may state that residents cannot leave a garage door open for an extended period of time or require certain types of landscaping. HOA’s are typically formed by the developer of the subdivision or a group of homeowners in the subdivision.
The CC&Rs may also provide for the collection of dues, or assessments, that the homeowners must pay to the HOA to finance the maintenance of common areas, such as swimming pools, tennis courts, green belts, and workout facilities. Generally, there are two types of assessments that a homeowner must pay:
An HOA can be a very powerful entity and homeowners should be aware of all possible ramifications of falling behind on HOA payments.
If a homeowner does not pay the required assessments, the HOA may choose to try to collect those dues through normal collection processes, such as collection calls and letters; by filing a civil suit to obtain a personal judgment against the homeowner; or by initiating a foreclosure. In most states, the foreclosure will be conducted in the same manner as a mortgage foreclosure. This means the HOA foreclosure will be nonjudicial or judicial depending on the state where the property is located. In a nonjudicial foreclosure, the home can be sold without any court involvement. With a judicial foreclosure, the foreclosure is processed through the state court system.
In many states, the HOA does not need to record a lien in order to foreclose on the property. The recording of the declaration of CC&Rs constitutes notice and perfection of the lien. Typically, the HOA lien is considered to exist as of the date the assessment becomes due.
Some states have particular requirements before an HOA can initiate a foreclosure. For example, in California, the amount owed must equal or exceed $1,800 (not including any accelerated assessments, late charges, collection costs, attorney's fees, or interest) or be more than twelve months delinquent before the HOA can initiate foreclosure proceedings. In most other states, there are no such restrictions on the amount that must be past due before foreclosure can be initiated and an HOA can foreclose to recover just a few hundred dollars.
In many states, the HOA lien has priority over all liens and encumbrances recorded after the recordation of the declaration of CC&Rs except a first mortgage or deed of trust that was recorded before the date the assessment became delinquent. As a result, an HOA foreclosure usually will not eliminate a first mortgage lien in a foreclosure. Often, junior mortgages or liens will be wiped out in an HOA foreclosure, but this too depends on state law. Sometimes the mortgage lender will pay off the HOA dues to stop the HOA foreclosure and proceed with its own foreclosure. This cost will then be added to the total debt due on the delinquent mortgage.
If a mortgage lien is superior to an HOA lien, the mortgage foreclosure will wipe out the HOA lien. However, the underlying debt for the past due HOA assessments will remain. HOA assessments are a personal liability of the person who owns the home at the time the assessments are due; the HOA can continue trying to collect the past due HOA assessments through methods other than foreclosure. Once the foreclosure is complete and title is granted to a new owner, that new owner will be responsible for the payment of HOA assessments from that day forward.
In certain states, some HOA liens are granted senior lien positions, even over a first mortgage or deed of trust, under certain circumstances. These HOA liens are called “super liens” and cannot be wiped out in a lender’s foreclosure. In Colorado, for example, HOAs have the right to a super lien to the extent of six months’ worth of delinquent assessments. Not all states have super lien statutes, and those that do exist vary from state to state.
The laws governing HOA foreclosures can be complicated and differ between states. Moreover, some states distinguish between and have separate statutes governing condominium owners’ associations and homeowners’ associations. If you are facing foreclosure by an HOA, you may want to seek advice from a licensed attorney in your state.