When you buy a single-family home, townhome, or condominium that's part of a planned community with covenants, you'll most likely pay fees and assessments, often collectively called "assessments," to a homeowners' association (HOA) or condominium owners' association (COA). If you fall behind in the assessments, the association will likely first try to collect the debt using traditional methods. For instance, the association will probably call you and send letters. But if those tactics don't get you to pay up, the association will probably try other ways to collect from you. The association might take away your privileges to use the common facilities or file a lawsuit to get a money judgment against you. Most HOAs and COAs also have the power to get a lien on your property if you become delinquent in assessments. Not only will an assessments lien cloud the title to the property, which hinders your ability to sell or refinance the home, but the property can also be foreclosed to force a sale to a new owner—even if the property has a mortgage.
In Arizona, if your home is part of an HOA or COA and you fall behind in assessments:
If the HOA or COA initiates a foreclosure, you might have a defense to the action, or you might be able to negotiate a way to get caught up on the overdue amounts and save your home.
Often, different sets of state laws govern HOAs in subdivision communities and COAs. In Arizona, one set of state laws covers HOAs in planned communities (Ariz. Rev. Stat. § 33-1801 and following), and another covers COAs (Ariz. Rev. Stat. § 33-1201 and following). The two sets of laws are very similar.
Based on the association's Declaration of Covenants, Conditions, and Restrictions (CC&Rs) or Declaration of Condominium and state law, most HOAs and COAs have the power to place a lien on your home if you become delinquent in paying the assessments. Once you fall behind in payments, a lien will usually automatically attach to your property. In some cases, the association will record its lien with the county recorder to provide public notice that the lien exists, regardless of whether state law requires recording.
In Arizona, the lien attaches to the property at the time the assessment becomes due. (Ariz. Rev. Stat. § 33-1807(A), § 33-1256(A)). The HOA or COA doesn't have to record the lien in the county records for it to be valid. (Ariz. Rev. Stat. § 33-1807(E), § 33-1256(E)). Although Arizona law doesn't require an association to record its lien, filing a "Notice of Claim of Lien" is common.
Arizona law limits the types of charges that the HOA or COA may include in the assessments lien. (Ariz. Rev. Stat. § 33-1807(A), § 33-1256(A)). Generally, the association may include, along with the past-due assessments, late-payment fees, reasonable collection fees, and reasonable attorneys' fees and costs.
The association can get a lien for fees, charges, late charges, other than charges for late payment of assessments, monetary penalties, or interest after the entry of a judgment in a civil suit for those fees, charges, late charges, monetary penalties, or interest from a court of competent jurisdiction and the recording of that judgment in the office of the county recorder as otherwise provided by law. (Ariz. Rev. Stat. § 33-1807(A), § 33-1256(A)).
At least 30 days before authorizing an attorney or a collection agency to begin collection activities, the association has to mail (by certified mail, return receipt requested) a written notice to the homeowner at the owner's address. The notice must state:
Your account is delinquent. If you do not bring your account current or make arrangements that are approved by the association to bring your account current within thirty days after the date of this notice, your account will be turned over for further collection proceedings. Such collection proceedings could include bringing a foreclosure action against your property.
The notice must be in boldfaced type or all capital letters and include the contact information for the person that the homeowner may contact to discuss payment. (Ariz. Rev. Stat. § 33-1807(K), § 33-1256(K)).
In Arizona, the HOA or COA may foreclose on its lien in the same manner as a mortgage lender can foreclose on a mortgage. (Ariz. Rev. Stat. § 33-1807(A), § 33-1256(A)). Because mortgages in Arizona must be foreclosed judicially, this means that the HOA or COA must file a lawsuit in court to foreclose its lien. (Ariz. Rev. Stat. § 33-721). Arizona home loans, on the other hand, are usually secured by a deed of trust rather than a mortgage. So, foreclosures by mortgage lenders in Arizona are typically nonjudicial.
In addition, Arizona has laws that limit the HOA's or COA's ability to foreclosure in certain circumstances. The HOA or COA can't foreclose unless the owner has been delinquent in paying the amounts secured by the lien (excluding reasonable collection fees, reasonable attorneys' fees, charges for late payments, and costs incurred with respect to the assessments) for a period of one year, or the delinquent amount is $1,200 or more, whichever occurs first, as determined on the date the action is filed. (Ariz. Rev. Stat. § 33-1807(A), § 33-1256(A)).
For the lien to remain valid, the HOA or COA must initiate an action to enforce the lien within six years from the date that the full amount of the assessments became due. (Ariz. Rev. Stat. § 33-1807(F), § 33-1256(F)).
After a judicial foreclosure, Arizona law provides a redemption period of:
A common misconception is that the association can't foreclose if you're current with your mortgage payments. But an association's right to foreclose isn't dependent on whether you're up to date on your mortgage. Instead, lien priority determines what happens in a foreclosure.
The priority of liens establishes who gets paid first following a foreclosure sale and often determines whether a lienholder will get paid at all. Liens generally follow the "first in time, first in right" rule, which says that whichever lien is recorded first in the land records has higher priority than later recorded liens. A first-lien has a higher priority than other liens and gets the first crack at the foreclosure sale proceeds. If any proceeds are left after the first lien is paid in full, the excess proceeds go to the second lienholder until that lien is paid off, and so on. A lien with a low priority might get nothing from a foreclosure sale.
But state law or an association's governing documents can adjust lien priority.
An association's lien is prior to all other liens, except for:
So, a foreclosure by an HOA or COA usually won't eliminate a first mortgage or deed of trust because the association's lien is normally lower in priority.
If you're facing an HOA or COA foreclosure in Arizona, consider consulting with a foreclosure attorney to discuss all legal options available in your particular circumstances.