An HOA foreclosure does not happen all the time, but it is still a possibility for every member of a homeowners association. As a homeowner, you must know what an HOA foreclosure entails and what you can do if you ever face one.
What You Must Know About an HOA Foreclosure
Homeowners associations collect assessments and fees from residents on a regular or special basis. These assessments and fees are then used to fund various expenses within the HOA, such as common area maintenance and repair. When homeowners first agree to join an HOA, they also agree to pay these assessments. Naturally, there are consequences that you must face if you fail to pay these assessments. Perhaps one of the most well-known consequences is an HOA lien and foreclosure.
Can an HOA Foreclose on Your House?
Generally speaking, an HOA can foreclose on your house, provided state laws and your HOA’s governing documents permit foreclosures. HOA foreclosures are usually triggered by a homeowner’s failure to pay assessments and fees. That means even if you stay up-to-date on all your mortgage payments, you can still lose your home to the HOA if you stop paying assessments.
You don’t even need to be behind by much. Even if you are only a few hundred dollars in debt to your HOA, the association can still have the power to foreclose on your property. This type of foreclosure typically undergoes the same process as a foreclosure brought on by your mortgage lender. When an HOA forecloses on your property, it can take the judicial or non-judicial route. A judicial foreclosure requires a lawsuit and takes the matter to court, whereas a non-judicial foreclosure does not.
Understanding HOA Liens
When you fail to pay your HOA assessment or fee, a lien automatically attaches to your property. Often, an HOA will record this lien with the county records office, though this is not a mandatory step.
If you want to remove the lien from your house, you need to settle your debt with the HOA. That includes the original assessment amount as well as any fines, interest, or penalties associated. You may even need to pay for attorney fees.
Even if an HOA refrains from foreclosing, an HOA lien can still give you a headache. When you have a lien attached to your property, you will have a hard time selling it because you lack a clear title.
What About Mortgages?
When an HOA places a lien on a property, the lien usually takes precedence over other existing liens. This includes the mortgage, but not the first mortgage, provided it was recorded prior to the lien placement. Though, if you signed any promissory notes, you will still need to settle those debts. If you have a lien on your home, the HOA will not be responsible for keeping up with mortgages. That means you will still need to pay off your mortgage to your lender.
Once the HOA decides to foreclose on your home, though, you can stop paying your mortgage. The HOA will then assume the responsibility of making the rest of the mortgage payments. However, more often than not, the HOA will simply allow the mortgage lender to foreclose on the property and then sell it to a new homeowner.
How to Fight HOA Foreclosure
While an HOA foreclosure can certainly be intimidating, as a homeowner, you are not totally powerless. You do have the option to fight the HOA foreclosure based on the following defenses:
1. No Authority to Foreclose
An HOA’s CC&Rs will typically outline when an HOA can foreclose and how it should proceed with the process. Though, not all CC&Rs contain a provision similar to this. In fact, some CC&Rs might not give the HOA the authority to foreclose. As such, it is important to review your HOA’s governing documents when faced with a foreclosure.
2. Unsanctioned Assessments
There are times when an HOA may impose an assessment that the CC&Rs don’t authorize. If you fail to pay this charge and the HOA forecloses on your property as a result, both the lien and the foreclosure are nullified. Again, this is where knowledge of your association’s governing documents comes in handy.
3. Erroneous Accounting
The assessment lien the HOA placed on your home may also be voided because of inaccurate accounting. If the HOA or the management company fails to calculate the assessments correctly, you can claim it as a defense. When this happens, the HOA or the management company will need to demonstrate their tabulations. This must include the correct values of the assessments, fees, fines, and interest, as well as a reference to the CC&Rs allowing each charge.
4. Non-Compliance With Foreclosure Statutes
Some states have laws governing how an HOA can go about foreclosures. If the HOA fails to comply with these laws, then you can use this claim to fight the foreclosure on your property. For instance, in California, the Civil Code Section 1367.4 dictates that an HOA may only foreclose on a property if the delinquent assessments reach over $1,800. The HOA may also begin foreclosure proceedings if the delinquency is at least 12 months old.
5. Inaccurate Recording
While not all states require the HOA to record the lien, some states, like Arizona, do. In fact, an HOA may even get in trouble for the failure of recordation. If your HOA neglects to record the lien or records it incorrectly, you can raise a wrongful lien claim against your association and fight your HOA foreclosure.
What Happens After HOA Foreclosure?
Foreclosure proceedings typically take about 60 days to process. An HOA foreclosure can negatively affect your credit score and make it difficult for you to obtain a loan.
Some banks and lenders may only accommodate a loan with a higher interest rate, while others may force you to make a bigger down payment.
After foreclosure, some states will let you buy your home back by settling your debt with the association. In this case, you must pay the amount you owe, including any fees and interest. If the HOA renovated or repaired your property in any way, you may need to reimburse the association for the cost. Laws can vary substantially from state to state, so it is essential to check your state laws.
Steer Clear from a Homeowners Association Foreclosure
No matter which way you look at it, an HOA foreclosure is bad news. You have everything to lose and nothing to gain from it. That is why you must try your best to avoid foreclosures. A surefire way to do so is to religiously pay your HOA assessments and fees. While you can certainly attempt to fight a foreclosure if you encounter it, prevention is always better than the cure.
Homeowners associations that need the help of an HOA management company can contact Cedar Management Group. We offer a wide array of services, including accounting, assessment collection, and legal assistance. Give us a call today at (877) 252-3327 or email us at firstname.lastname@example.org.
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