Find out what will happen to your mortgage and your home if you stop paying your homeowners' association dues.
A "homeowners' association" (HOA) is the governing body of a real estate subdivision that enforces the covenants, conditions, and restrictions (CC&Rs) of that community. The CC&Rs set out the rules for the neighborhood.
An HOA can be a very powerful entity, and homeowners should be aware of all possible consequences of falling behind on HOA payments, including foreclosure.
What Are Some Examples of CC&Rs?
The CC&Rs might state that residents can't leave a garage door open for an extended period, require specific landscaping, or limit how long they can leave their garbage cans at the curb. Sometimes, CC&Rs restrict the color residents may paint their houses.
They might 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, the two types of assessments that a homeowner must pay are:
- regular assessments, which cover maintenance costs for the common areas and any services provided by the HOA, as well as deposits to the HOA general operating account, and
- special assessments are imposed on a one-time basis, often for improvements to the neighborhood or to repair existing facilities.
The CC&Rs probably give the HOA the right to a lien on the property if you don't pay the assessments.
What Is an HOA Lien?
Most HOAs can get a lien on your property if you become delinquent in assessments. When you fail to pay, a lien will usually automatically attach to your property. Sometimes, the association will record its lien with the county recorder to provide public notice that it exists, regardless of whether state law requires recording.
An assessments lien encumbers the home's title, hindering your ability to sell or refinance the home.
What Are the Consequences of Not Paying the HOA Assessments (Dues)?
If a homeowner doesn't pay the required assessments, the HOA might choose to try to collect those dues in the following ways:
- through normal collection processes (like making collection calls and sending demand letters)
- by filing a civil suit to get a personal judgment against the homeowner, or
- by initiating a foreclosure.
How HOA Foreclosures Work
In most states, the foreclosure will be conducted in the same manner as a mortgage foreclosure. So, a foreclosure by an HOA will be nonjudicial or judicial, depending on the laws where the property is located. In a nonjudicial foreclosure, the home can generally be sold without court involvement. With a judicial foreclosure, the foreclosure is processed through the state court system.
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, attorneys' fees, or interest) or be more than twelve months delinquent before the HOA can initiate foreclosure proceedings. (Cal. Civ. Code § 1367.4).
Many other states, however, have 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.
What Happens to a Delinquent Mortgage When the HOA Forecloses?
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 won't eliminate a first mortgage lien in a foreclosure. However, depending on state law, junior mortgages or liens will often be wiped out in an HOA foreclosure.
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.
HOA Assessments Following a Mortgage Foreclosure
If a mortgage lien is superior to an HOA lien, a 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 when the assessments are due. The HOA can continue trying to collect the unpaid HOA assessments through methods other than foreclosure. Once the foreclosure is complete and the home's title is granted to a new owner, that new owner will be responsible for paying HOA assessments from that day forward.
In certain states, some HOA liens are granted superior lien positions—even over a first mortgage or deed of trust—under certain circumstances. These HOA liens are called "super liens" and can't 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. (Colo. Rev. Stat. § 38-33.3-316(2)(b)). Not all states have super-lien statutes, and those that exist vary from state to state.
When to Seek Counsel
The laws governing HOA foreclosures can be complicated and differ between states. Moreover, some states distinguish between and have separate statutes governing condominium owners' and homeowners' associations. If you're facing foreclosure by an HOA, consider getting advice from a licensed attorney in your state.
