Individuals who own a home that is part of a homeowner’s association face unique challenges if they fall behind on their HOA dues (periodic fees that cover maintaining the community) or special assessments (one-time expense to cover a major improvement). If this happens to a homeowner, the HOA can place a lien on the property and foreclose on its lien. So, what happens to the other mortgages that are on the property in an HOA foreclosure? The answers can vary and depend on the lien priority of the other mortgages.
Determining Lien Priority in an HOA Foreclosure
Lien priority is generally determined by the recording date of the lien – the first liens recorded have first priority. Some liens, such as property tax liens, will have superiority over all other types of liens. Lien priority comes up in the matter of foreclosure because when a senior lien holder forecloses, it will usually wipe out any junior lien holder. If the junior lien holder forecloses then that foreclosure is subject to the senior lien, meaning the senior lien still has to be paid.
Generally, HOAs do have the power to place a lien on your home if you fall behind on paying the HOA dues or any special assessment fees. In most states, lien priority is determined by only the recording date of the Declaration of Covenants, Conditions and Restrictions. For example, lien priority in Texas is as follows (from senior to junior): property tax liens, mortgage liens, HOA liens.
Before we get more into HOA liens and how to handle foreclosure, it’s important to understand how property tax and mortgage liens may be impacted by an HOA foreclosure.
Property Tax Liens
As noted above, property tax liens are senior to both mortgage liens and HOA liens. This means that, even if a home is cleared of both mortgage and HOA liens, any back taxes on the property will still be owed. However, if a home has a property tax lien, a mortgage lien and an HOA lien, the mortgage liens and HOAs liens will be cleared when the property tax liens are foreclosed.
While property tax liens supersede mortgage liens, mortgages do take precedence over HOA liens. In most cases, mortgages are recorded before the HOA lien is recorded. When homeowners take out loans to purchase houses, they sign both the mortgage (deed) and a promissory note. The mortgage is what allows the lien holder to foreclose, and the promissory note is essentially what it sounds like – your promise to repay the loan amount.
For the homeowner, this means that the mortgage stays on the property even after the HOA forecloses on your home. If you stop making payments on the mortgage, the HOA can either foreclosure on the home, or take over payments of the mortgage in order to stop the house from going into foreclosure. Because you signed the promissory note, even if the HOA forecloses, you are still liable for the debt on the mortgage. If you sell your home before the HOA forecloses on your home, the remaining amount owed on the mortgage and the HOA fees will still be due.
About HOA Foreclosure in Texas
The Texas Residential Property Owners Protection Act specifies laws regarding HOA foreclosures in Texas. If you fall behind on your dues or assessments, the HOA must provide written notice at least 60 days before starting foreclosure proceedings. If you are unable to pay within that time, the HOA is required to offer a payment plan. However, if you disregard the notice or fail to pay, your HOA could take your home.
Although an HOA can foreclose on your property due to unpaid dues or assessments, it cannot foreclose if the debt securing the lien is made up of only fines assessed by the HOA, its attorney’s fees associated or other specified added fees. Discuss this with an attorney.
Can I Sell the House Before HOA Forecloses?
If you received notice from your homeowner’s association of intent to foreclose and you want to sell your house before the foreclosure, contact Big State Home Buyers now. We can discuss your options and may be able to provide a fast cash offer to stop the foreclosure.