Can You Foreclose for Delinquent HOA Dues?
In states such as Colorado, homeowners' associations (HOAs) have lien rights to foreclose on their homeowners' real property for nonpayment of dues or assessments. Their lien rights allow them to have superior lien status to many other creditors, including local tax authorities. HOAs can foreclose on a homeowner's property with or without judicial proceedings, according to state laws.
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Overview
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HOAs allow private homeowners to collectively enforce bylaws and architectural design standards. HOAs can arrange snow removal, lawn mowing and the upkeep of common grounds. Typically, HOAs are run by officers elected by homeowners and incorporate as nonprofit corporations. Homeowners are responsible for paying monthly, quarterly or annual dues, attending annual HOA meetings and voting on issues affecting their property rights or neighborhoods. In addition to collecting dues from homeowners, HOAs can assess fines against homeowners who fail to comply with their bylaws. When homeowners fail to pay their assessments or dues, HOAs may be able to file property liens.
Uniform State Laws
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The National Conference of Commissioners on Uniform State Laws drafted the Uniform Planned Community Act. Approved and endorsed by the American Bar Association in 1981, the act is not federal law but model language for state legislatures. Several states have adopted the suggested language and require homeowners to follow the mandates proposed by the act.
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Model Language
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The Uniform Planned Community Act allows HOAs to exercise their foreclosure rights, regardless of whether homeowners are delinquent on their loans. In other words, HOAs may foreclose on a homeowner's property and collect their unpaid dues or assessments without obtaining permission from a homeowner's lienholder or trustee pursuant to a deed of trust. Furthermore, pursuant to the act, HOAs can assert their property rights and bind homeowners and their lenders without first obtaining consent from them.
State Laws
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State laws differ as to an HOA's right to foreclose on a homeowner's property. In Arizona, for example, HOA liens automatically attach to an owner's home once he owes the HOA an assessment fine or dues. Arizona HOA liens automatically create an encumbrance or cloud on title. A cloud on an owner's title effectively interferes with his right to sell his home or obtain financing from a lender until the HOA releases its lien. Typically, an HOA will release its lien or cease foreclosure proceedings only after a homeowner pays all of his unpaid dues, assessments, court costs and legal expenses.
Foreclosure Process
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In judicial foreclosure states, HOAs must first obtain a legal judgment to foreclose before beginning their collection efforts. Some states, including Arizona, do not allow HOAs to foreclose unless a homeowner owes at least $1.2 million or is at least a year delinquent in her assessments or dues. Furthermore, state laws may require that HOAs give homeowners a right of redemption allowing them to reclaim or redeem their homes for a limited time after they file foreclosure proceedings. In nonjudicial foreclosure states, HOAs may be able to assert their rights without first obtaining a legal judgment.
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References
- Lawyers.com: Homeowners' Association Assessments and Fees
- Martindate Hubbell: Answers to Common HOA Assessment Lien Questions
- Cornell University Law School: Uniform Business and Financial Laws Locator
- Colorado Legislature: House Bill 11-1197
- National Conference of Commissions on Uniform State Laws: Uniform Planned Community Act
