When people don’t pay their homeowners’ association (HOA) assessments, the HOA typically gets a lien on the property. The lien is either a regular HOA lien or, in some states, the lien is what’s called a “super lien.” Once the HOA has a lien—regular or super—it can foreclose. For a homeowner, a super lien foreclosure isn’t any different than a regular HOA lien foreclosure. Either way, the homeowner loses the property. But for a first mortgage lender, a super lien foreclosure is worse. Whereas a regular HOA lien foreclosure normally doesn’t affect a first mortgage lender, an HOA super lien foreclosure can eliminate a first mortgage.
How HOAs Work
People who live in a planned community are often part of an HOA. According to a 2014 report by the Community Associations Institute, around 20% of the population in the U.S.—66.7 million people—live in HOA or condominium association (COA) communities. (In this article, the terms “HOA” and “COA” have the same meaning.)
The HOA manages the community and enforces the restrictions and requirements that come with living in a planned development. The restrictions and requirements are set out in the HOA’s governing documents, including the Declaration of Covenants, Conditions, and Restrictions (CC&Rs). The CC&Rs also set out the rules for collecting regular and special assessments from each household or unit in the community.
Unpaid Assessments Typically Lead to HOA Liens, Maybe Foreclosure
If a homeowner doesn’t pay the HOA assessments, the HOA generally automatically gets a lien on the property—the HOA doesn’t have to go to court to get a judgment first. The lien usually attaches to the home as of:
- the date the CC&Rs were recorded
- when the assessments became due, or
- when the HOA recorded a notice of lien in the land records.
The lien’s priority (see below) is based on when the lien attaches to the property. State law also sometimes sets out the priority of assessments liens.
Once an HOA has a lien, it can then foreclose that lien and sell the home to pay off the debt.
Regular HOA Liens: What Happens to a First Mortgage If the HOA Forecloses
Often, the CC&Rs or state laws say that an HOA lien is junior to a first mortgage—even if the HOA lien attached to the property prior to the mortgage. So, if the HOA forecloses its lien, the first mortgage lien remains on the property following the foreclosure.
HOA Super Liens: What Happens to a First Mortgage If the HOA Forecloses
A super lien is a type of lien that, under state law, gets a higher priority than other types of liens. An HOA super lien places the interest of the HOA in front of the first mortgage. Around 20 states and the District of Columbia have super lien laws that give HOA assessments liens—usually around six months’ worth of overdue assessments—priority ahead of a first mortgage.
If an HOA forecloses a super lien, the foreclosure extinguishes a first mortgage lender’s property rights. For this reason, first mortgage lenders usually pay off delinquent HOA assessments in states that have super lien laws—at least up to the super lien amount—and then pass those costs along to the homeowner. If the homeowner doesn’t reimburse the lender for the HOA assessments that the lender paid, the first mortgage lender may foreclose the home in the same manner as if the homeowner fell behind in mortgage payments.
If you’re facing a foreclosure by an HOA or lender because of unpaid HOA assessments, consider contacting a foreclosure attorney to learn about different options in your particular situation. If you can’t afford an attorney, a HUD-approved housing counselor might be able to help you.