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 if HOA funds do not cover a major improvement). If this happens to a homeowner, the HOA can 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
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.
HOAs generally do not have the power to place a lien on your home if you have gotten behind on paying the HOA monthly 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. (From: www.nolo.com)
Three Types of Liens
1. First Mortgages
First mortgages supersede HOA liens in most cases since the first mortgage is usually 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 first mortgage stays on the property even after the HOA forecloses on your home. If you stop making payments on the first mortgage, the HOA can either foreclosure on the home, or take over payments of the first 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 first mortgage.
2. HOA Super Liens
In some states there are certain types of HOA liens which have super priority. In these states if a homeowner goes past a certain number of months on assessments then the assessments and past due fees are given super lien status and can be senior even to a first mortgage. In some cases an HOA foreclosure on a super lien can potentially eliminate the first mortgage along with any junior mortgages on the property. Remember, though, that just because a mortgage lien in eliminated it does not mean you are no longer responsible for the debt.
3. Second Mortgages
Second mortgages which were recorded after the HOA lien is perfected, will be eliminated by the HOA foreclosure. However, if the second mortgage was recorded prior to the HOA lien then the second mortgage would usually stay on the property after the HOA foreclosure.
These rules vary from state to state, so it is important to understand the specific rules governing HOA foreclosures and lien priority in your state. An HOA does not necessarily have to record the lien later if the owner becomes delinquent on assessments.