In California, if your home is part of a homeowners' association (HOA) and you fall behind in the assessments (or "dues"):
If the HOA starts a foreclosure, you might have a defense to the action, such as the association charged you too much, imposed unreasonable fees, or failed to follow state laws.
Or you might be able to negotiate a way to get caught up on the overdue amounts and save your home. For example, you might be able to pay off the entire delinquency, negotiate a reduced payoff amount, or enter into a repayment plan.
When you buy a single-family home, townhome, or another home in a planned community with covenants, you'll most likely pay fees and assessments, often collectively called "assessments," to an HOA. If you fall behind in the assessments, the association will likely initially 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 might try other ways to collect from you. The association could take away your privileges to use the common facilities or file a lawsuit for a money judgment against you.
Based on the association's Declaration of Covenants, Conditions, and Restrictions (CC&Rs) and state law, most HOAs also have the power to get a lien on your property if you become delinquent in assessments. Once you fall behind in payments, a lien will usually automatically attach to your property. Sometimes, 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.
An assessments lien clouds the title to the property, hindering your ability to sell or refinance the home. In addition, the property can also be foreclosed to force a sale to a new owner—even if the property has a mortgage.
In California, a lien can't be recorded until 30 days after the HOA has sent you (the homeowner) notice about the delinquent assessments. The notice must include, among other things:
Before recording its lien for delinquent assessments, the association has to offer you and, if requested, participate in dispute resolution under the association's "meet and confer" program. (Cal. Civ. Code §§ 5900 to 5920, § 5660(e).) Under California law, you may also submit a request to meet with the board to discuss a payment plan. (Cal. Civ. Code § 5665.)
Assuming you don't work out a way to get caught up on the amounts due, the HOA can then record a lien on your property in the county records. (Cal. Civ. Code § 5675.) A notice must be mailed to all record owners no later than ten calendar days after recording. (Cal. Civ. Code § 5675(e).)
Only the HOA's board of directors has the authority to decide to record a lien for delinquent assessments. The board must approve the decision by a majority vote of the board members in an open meeting and must record the vote in the minutes of that meeting. (Cal. Civ. Code § 5673.)
In California, an assessment is considered delinquent 15 days after it is due unless the CC&Rs provide for a longer amount of time. (Cal. Civ. Code § 5650.)
If an assessment is delinquent, the association may recover all of the following:
In California, 30 days after the lien was recorded, the HOA may foreclose its lien judicially or nonjudicially. (Cal. Civ. Code § 5700, § 5705, § 5710). Most HOA foreclosures in California are nonjudicial.
California law limits the HOA's ability to foreclose in some circumstances. The HOA can't foreclose unless:
Also, before initiating a foreclosure, an association must also offer the "meet and confer" program or another alternative dispute resolution with a neutral third party. (Cal. Civ. Code §§ 5925 to 5965, § 5660(f).)
If the HOA forecloses using a nonjudicial process, the foreclosure is subject to a 90-day right of redemption after the sale. (Cal. Civ. Code § 5715.) To redeem the property, you must pay all assessments, interest, attorneys' fees, and possibly the costs of repair. (See Barry v. OC Residential Properties, LLC, 194 Cal.App.4th 861 (2011).)
In judicial foreclosures, the redemption period is:
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.
In California, an HOA lien is prior to all other liens recorded after the notice of assessment, except that the CC&Rs may provide that the HOA lien can be subordinated to any other liens and encumbrances. (Cal. Civ. Code § 5680).
So, depending on the recording date, a first-mortgage lien might remain on the property following an HOA's foreclosure; the purchaser at the foreclosure sale takes the property's title subject to the lien of the first-mortgage holder.
California law requires each HOA to give members a schedule of fines and fees, which must be reasonable. (Cal. Civ. Code § 5850.) HOAs can't charge interest on unpaid fines. (Cal. Civ. Code § 5725(b), § 5650(b)(3).)
HOAs also can't charge late fees on unpaid late fees and unpaid fines. Because state law allows a late fee of 10% or $10, whichever is greater (unless the CC&Rs specify a lesser amount) against delinquent assessments, late charges cant be imposed on overdue late charges or unpaid fines. (Cal. Civ. Code § 5650(b)(2).)
An HOA can't use the lien and nonjudicial foreclosure process that's available for delinquent regular and special assessments to collect unpaid fines. (Cal. Civ. Code § 5725(b).) But the HOA may file a lawsuit, like in small claims court, or wait until you sell your home and demand payment during escrow.
If you're facing an HOA foreclosure in California, consider consulting with a foreclosure attorney to discuss all legal options available in your circumstances.