People who own homes that are part of a development’s homeowners’ association, known commonly as an “HOA,” typically have to pay assessments (dues) to the HOA. The dues help maintain the community’s common areas and cover the cost of community services. But if a homeowner doesn’t pay up, the HOA could start a foreclosure, which is one of the ways HOAs use to collect unpaid assessments.
If you’re facing an HOA foreclosure for unpaid assessments, you might be able to save your home by:
- paying the full amount you owe
- settling the debt for a lesser amount
- getting current with a repayment plan
- filing for bankruptcy, or
- raising a defense to the foreclosure.
Keep reading to learn more about various ways that you can potentially stop an HOA foreclosure.
Paying the Full Amount
The simplest way to stop an HOA from foreclosing is to make a lump-sum payment of all overdue assessments, plus interest, late fees, attorneys’ fees, and costs. In practice though, paying the full amount isn't often a viable option for homeowners who are significantly behind in assessments.
Settling for a Lesser Amount
If you can’t come up with enough cash to pay the back-due assessments all at once, another way to prevent an HOA from foreclosing is to persuade the HOA to accept a lesser amount to satisfy the debt. Unfortunately, not too many HOAs are willing to entertain the idea of taking less than they’re owed. Still, it doesn’t hurt to ask the HOA if it will consider a short payoff.
Getting Current With a Repayment Plan
If you can’t afford to pay off the debt in a lump sum or your HOA isn’t willing to consider a reduced payoff amount, the association might agree to a repayment plan. In a repayment plan, the homeowner pays a portion of the past-due assessments along with the regular monthly amount over a period of time.
For example, suppose you are three months behind on your HOA dues of $400 a month—a total of $1,200 overdue. The HOA might allow you to pay $200 extra each month over the next six months to get caught up. This means you must pay $600 a month for six months. At the end of the repayment period, you go back to paying the regular HOA amount of $400 a month.
Filing for Bankruptcy
You can stop an HOA foreclosure—at least temporarily—by filing for bankruptcy. Once you file, an “automatic stay” goes into effect immediately. The stay prevents an HOA (or anyone else) from foreclosing on the property or otherwise trying to collect a debt you owe.
But, filing bankruptcy will probably provide only temporary relief because the HOA can ask the bankruptcy court to lift the stay. If the court agrees to lift the stay, the HOA may continue with the foreclosure. If you want to keep the home, you will usually need to catch up on the missed HOA payments. (Learn what happens to unpaid HOA dues in a Chapter 7 or Chapter 13 bankruptcy.)
Raising a Defense to the Foreclosure
To stop the foreclosure, you might be able to argue that the HOA committed some type of misconduct and, therefore, you do not legally owe the debt. A few of the possible defenses to an HOA foreclosure include:
- The HOA improperly calculated the owed assessments.
- The HOA didn’t follow state law. For example, in California, an HOA can’t begin a foreclosure until the assessments are over 12 months delinquent or the overdue assessments are $1,800 or more. If an HOA starts a foreclosure before meeting one of these benchmarks, a homeowner can raise the failure to comply with California law as a defense.
- The HOA misapplied payments to a category other than assessments. Depending on state law and the HOA’s governing documents, an HOA might have to apply a homeowner's payments to assessments before applying them to other categories, like fines.
How you must raise a defense to an HOA foreclosure depends on whether the foreclosure is judicial or nonjudicial. In some states, an HOA files a lawsuit in court to foreclose, which is called a judicial foreclosure. In other states, the HOA may choose to use a nonjudicial foreclosure, which is an out-of-court process, rather than going through the court. If your HOA forecloses through the court, you automatically get a chance to raise your defense. Though, if the HOA forecloses nonjudicially, you’ll need to file a lawsuit to bring up any defenses.
Talk to an Attorney
HOAs are infamous for starting foreclosures in cases where homeowners are behind on relatively small amounts of assessments. If you are facing an HOA foreclosure and need help negotiating an alternative—or you think you have a legitimate defense to the foreclosure—consider talking to a foreclosure attorney who can advise you about what to do in your circumstances. To find out if bankruptcy might be right for your situation, contact a bankruptcy attorney.