If you don’t pay the fees and special assessments imposed by your homeowners’ association, in most cases, a lien will usually automatically attach to your property. In certain states, homeowners’ association liens are given “super lien” status. Read on to learn more about super liens and how they affect a foreclosure.
(To learn about HOAs, foreclosure of HOA liens, and more, visit our HOA Foreclosures topic area.)
Understanding Super Liens
To fully understand how homeowners’ association (HOA) super liens work, you must understand some basic terminology.
Priority. Generally, when you purchase a home, you take out a first mortgage, which is recorded first and becomes the first lien. In some cases, you might take out a second mortgage, which is recorded second and becomes the second lien. Priority is generally established by the recording date.
Lien priority determines the order in which lien holders are paid the proceeds of a foreclosure sale. In most cases, especially when a property is underwater (where the fair market value of the home is less than the outstanding debt) all of the proceeds from a foreclosure sale will go to the first-mortgage holder. Junior lien holders often get nothing. (Learn more about lien priority in our article What Happens to Liens and Second Mortgages in Foreclosure?)
Assessment Lien. An HOA assessment lien is a lien on a homeowner’s property if he or she becomes delinquent in paying the monthly fees and/or any special assessments (usually collectively referred to as “assessments”). The lien will typically automatically attach to that homeowner's property, commonly as of the date the HOA’s Declaration of Covenants, Conditions, and Restrictions (CC&Rs) was recorded or as of the date the assessments became due. Often, the CC&Rs will contain a provision stating that any HOA lien is subordinate to a first mortgage, even if the mortgage was recorded after the assessment lien was perfected. State law may also determine the priority of an assessment lien. In this manner, HOA liens are often junior to first-mortgage liens.
Super Lien. A super lien is a category of lien that, pursuant to state statute, is given a higher priority than all other types of liens. When it comes to HOA assessment liens, a super lien refers to that portion of a homeowners' association lien that is given higher priority than even the first-mortgage holder, placing the interest of the HOA in front of the first mortgage. (This is similar to a property tax lien or mechanic’s lien. Learn more about the different types of liens in our article Types of Property Liens.)
Some States Give HOA Liens Super Lien Status
Approximately 20 states have laws that give HOA assessment liens super lien status under certain circumstances. For example, in Colorado, HOAs have a super lien that has priority over a first deed of trust (mortgage) to the extent of six months worth of delinquent assessments (Colo. Rev. Stat. § 38-33.3-316). In Nevada, nine months of assessments have super lien status (Nev. Rev. Stat. § 116.3116).
What Happens When the HOA Forecloses its Super Lien?
If the HOA forecloses a super lien, not only does it collect its debt, it eliminates the first mortgage, as well as any other junior liens on the property. Consequently, when a lender is notified that a foreclosure has been initiated by the HOA for unpaid assessments in a super-lien state, in most cases, the lender pays off the super-lien amount to preserve its position as the first-lien holder and stop the foreclosure.
There have been instances of first mortgages being completely wiped out in an HOA super lien foreclosure when the mortgage holder neglects to pay off the super lien to halt the foreclosure. As a result, both Fannie Mae and HUD (the U.S. Department of Housing and Urban Development) have instructed mortgage servicers to proactively protect the priority of the mortgage lien and to clear all liens for delinquent HOA dues, rather than waiting until an HOA foreclosure starts, to keep this from happening in super lien states.
What Happens When the First-Mortgage Holder Forecloses?
When the first-mortgage holder forecloses in a super lien state, the HOA is repaid first up to the allowable amount of the super lien, which is commonly a certain number of months of overdue assessments. (Generally, if the first mortgage holder forecloses, but it is not a super-lien state, the HOA assessment lien gets extinguished in the foreclosure. Learn more about foreclosure in Nolo's Foreclosure topic area.)
Once the foreclosure sale has been completed and all redemption periods have expired, the purchaser at the foreclosure sale is responsible for paying current and future HOA assessments.
The Justification for HOA Super Liens
A common justification for giving super lien status to HOA assessment liens is that HOAs help preserve the value of the community. It has been argued, especially during the housing crisis, that neighborhoods suffer from deferred maintenance and other problems if their fees remain unpaid. Super liens help ensure that HOAs receive the funds needed to maintain their community.