Many homeowners and other property owners pay their dues to their local homeowners association (HOA). An HOA can be defined as a legal entity that manages and maintains a neighborhood. Although the members of the community (the property owners) fund the entity, they still must follow the rules put into place. These are generally known as the Declaration of Covenants, Conditions, and Restrictions (CC&Rs).
As an entity that exists as a rule enforcer and as a fee collector, HOAs hold the power to foreclose on you if you do not pay your dues.
Property owners who live in a jurisdiction of an HOA probably know the rules of their community, but if you do not, it is essential that you study up on the powers that rule over you. If you default on HOA fees, the association can place a lien on your home which can lead to them foreclosing on you.
Individual state laws are crucial to study up on, as each state and the CC&Rs will dictate how a homeowner association can initiate foreclosure on you once the lien is placed on your property. It is important to understand that both judicial and non-judicial states give HOAs the right to foreclosure.
In all states except Alaska, Arizona, California, Connecticut, Idaho, Minnesota, North Carolina, North Dakota, Oregon, Texas, Utah and Washington, the HOA must file a lawsuit against the homeowner and obtain a judgment from the court to gain the ability to sell the home to satisfy the HOA’s lien.
Many homeowners may ask what happens to their first mortgage. First mortgages hold priority over all other liens, so they will naturally remain on the property after the HOA foreclosure. HOA liens however have priority over the remainder of liens in several states, and will wipe out any second or third mortgages.
Aside from foreclosure, hindering your local association by not paying your assessments, late charges, fines or interest payments could affect your ability to sell or refinance the property. This can ultimately impact a homeowner’s decision to get the money to pay their fees or to conduct a short sale.
These fees are more serious than a first time homebuyer may think. As a servicer who regulates and maintains the entire community as a whole, HOAs have the power to place liens on properties if the homeowners default on their monthly dues or special assessment collections. This may seem like a laughable truth, but HOAs can be just as ruthless as a bank. The liens are often recorded with the county recorder to provide notice that the note exists.
Many lenders don’t give you a notice of default until a couple of months after you initially became delinquent. Foreclosure takes years in some states to initiate. These liens can and are placed on your property as of the date the assessments became due. Additionally, states like California enable HOAs to initiate the foreclosure process just 75 days after the missed payment was due.
HOA foreclosure limits
This is where each individual borrower’s research will be crucial. Several states impose laws that limit when an HOA can place an assessment lien on a property. California for example mandates that delinquent assessments must equal or exceed $1,800, or the delinquency must be at least 12 months old before the foreclosure timeline can start. This rule can be seen under Cal. Civ. Code §1367.4.
Surprisingly, many people get caught in this mess with their HOA by defaulting on the bare minimum. According to a Fox Business article from 2010, a California study pointed out that the median amount owed in HOA foreclosures was just over $2,000. In other cases, the amount defaulted on could reach over $190,000.
While these foreclosures are completely legal, the outcome of the process could be argued as a real problem. Take for example, the Dallas Morning News story that was reported by NPR back in 2010 that addressed an HOA foreclosure that took place in Texas. After the wife of a soldier who was fighting over in IRAQ suffered from depression and missed two monthly payments that amounted to less than $1,000, the $300,000 property sold for $3,500 at auction. It is also noteworthy to point out that the buyer flipped it for a 3,700% profit. While this story is one of the more emotional ones, it shows just how tedious HOA foreclosures are in some states. The entire foreclosure story of the Texas homeowner can be found at this NPR article link.
Because foreclosure is a serious matter, all borrowers may want to seek the assistance of a real estate or foreclosure attorney before proceeding on their own.
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