HOA Lien: What Is It And What To Do If Your Home Has It

Every now and then, homeowners will encounter an HOA lien on their property or unit. When this happens, they have an outstanding debt with their HOA or condo association. Left unpaid, the lien can quickly become a foreclosure to satisfy the debt forcefully. As a result, they will lose ownership of their property.

What Is an HOA Lien?

A homeowners association lien on property is a legal claim that an HOA has against a person’s property. This lien arises from unpaid fees, dues, or special assessments.

Homeowners should pay dues and special assessments to their association. They agree to fulfill this obligation when buying a property within the HOA community. When a homeowner defaults on their dues or fails to pay their special assessment, the HOA can place a lien on the property to secure the debt.

Liens make it more difficult for homeowners to sell their property. They can’t proceed with the transaction unless they satisfy the lien first. In many cases, the HOA can take things one step further and initiate foreclosure proceedings.

HOA Lien Foreclosure: What Follows After

When a homeowner does not pay their debt to the HOA, the HOA can potentially foreclose on the property. Associations do this to satisfy the debt by selling the property or unit. It is similar to how a lender would foreclose on a home if the borrower fails to pay their mortgage.

The HOA foreclosure process follows one of two ways:

•  Judicial Foreclosure. This process requires the HOA to file a lawsuit against the homeowner. Doing this will grant them a judgment from the court, permitting them to foreclose on the home to satisfy the lien.
• Nonjudicial Foreclosure. This process does not require the HOA to go through state court. Instead, HOAs must adhere to specific requirements and procedures outlined within state laws and the HOA’s CC&Rs.

It is worth noting that HOAs can typically foreclose on an owner’s property even if it has an active mortgage attached. Of course, HOA boards should still consult their lawyers and review their governing documents for confirmation.

Why Are HOA Fees Important?

Liens and foreclosures serve an important purpose: to enforce homeowners’ obligation to pay dues to the HOA. Dues play a crucial role in the operations of a community. These fund the various expenses related to HOA management, including but not limited to maintenance costs, landscaping costs, insurance premiums, and vendor fees.

An HOA usually goes through other enforcement actions before placing a lien on the home. These include imposing late charges, fines, and interests. An HOA may even refer the account to a collection agency or attorney. However, it is common for HOAs to attach a lien to the property and subsequently foreclose on the home, especially if other methods don’t work.

Can the Board Put an HOA Lien on a House?

While most HOAs have the power to place a lien on a property for unpaid dues, the specific rules and procedures can vary depending on state laws and the HOA’s governing documents. Some states have specific statutes that regulate how HOAs can enforce liens. These usually involve notification requirements and opportunities for homeowners to settle their debt before foreclosure begins.

Can All HOAs Foreclose?

State laws often require associations to follow due process when foreclosing on an HOA property lien. Certain conditions may need to be met before foreclosure can start.

For instance, in California, an HOA may only foreclose on a home if:

• The owner’s delinquent dues or special assessments are equal to or exceed $1,800 (not including late fees, collection costs, and interests); or,
• The delinquency is at least 12 months old.

It is essential to review the circumstances permitting an HOA to foreclose according to state law and the governing documents. Consulting with an HOA attorney is ideal.

How Long Do HOA Liens Last?

The HOA lien statute of limitations can vary depending on state laws as well as the actions the HOA and the homeowner take. In some states, HOA liens may remain in effect until the owner settles their delinquent sums or the property is sold. Other states impose a time limit on how long an HOA lien can remain intact, expiring after a duration of non-enforcement.

In Florida, for instance, HOAs have one year to enforce the lien and take legal action. Otherwise, according to Section 718.116(5)(b) of the Florida Statutes, the lien will expire.

Does a HOA Lien Affect Your Credit Score?

If an owner falls behind on their HOA fees, they might not see a drop in their credit score. Not all HOAs report late or missed dues payments to credit reporting bureaus.

That said, if an owner loses their home to foreclosure, they will likely lose points on their credit score. Even if the HOA does not report this to credit reporting bureaus, an owner’s credit history will still reflect the foreclosure. This happens for judicial and nonjudicial foreclosures, as both methods involve filing paperwork that appears on public records.

A person with a low credit score will struggle to apply for a new loan or credit to secure a new home.

Mortgage After an HOA Foreclosure

HOA liens typically hold priority over other liens and encumbrances recorded after the CC&R declaration, except for pre-existing first mortgage or deed of trust liens. In the event of an HOA foreclosure, the borrower remains responsible for the debt owed to the first mortgage holder, even though the HOA may gain ownership of the property.

The HOA then has the option to pay off the first mortgage to prevent foreclosure or allow the first mortgage holder to foreclose. Second mortgage liens and other junior liens are extinguished following an HOA foreclosure, but the borrower remains liable for the debt and may be pursued for payment by junior lienholders.

Recovering Property Rights After Foreclosure

In some states, owners might be able to repurchase their property after foreclosure. This ultimately depends on the state’s redemption laws, which vary significantly across states.

For instance, in California, owners have a 90-day window if their HOA forecloses on their home nonjudicially. This 90-day period is what’s known as a right of redemption. During this period, owners can reclaim their property by paying off the lien amount, associated costs, and fees. Additionally, California law mandates reimbursing the purchaser for any property repairs.

In Texas, the redemption period extends to 180 days from the date the HOA sends written notice of the sale to the homeowner. However, this timeline may differ for condominium associations.

Redemption periods can vary in duration depending on state regulations. Even if there isn’t a specific right of redemption outlined after an HOA foreclosure, states might have other laws permitting redemption following a mortgage lien foreclosure, which could also apply to HOA foreclosures.

It’s worth noting that some states may not offer a redemption right.

The Best Way to Prevent HOA Liens

Understanding how an HOA lien works and the potential for foreclosure is crucial for homeowners within HOA communities. Failure to pay dues or special assessments can lead to owners losing their homes. As such, keeping up with payments is the best way to avoid liens and foreclosure.

Is your homeowners association looking for a reliable HOA management company? Start browsing our online directory today!

RELATED ARTICLES:

• Do HOA Rules Override State Laws And City Ordinances?
• HOA Payment Plans: Should These Be Offered To Late Payers?
• HOA CC&R: What Is It And Why It’s Important In A Community