If you live in a planned development, your community might offer various amenities, like pools, parks, and clubhouses. These common areas are jointly owned by the development’s homeowners who bear the costs of maintaining, repairing, and replacing them when needed. The homeowners must pay monthly fees (dues) and assessments to the community’s homeowners’ association (HOA) to cover these costs.
When you purchased a home in the development, you agreed to the terms and conditions in the development’s governing documents, including the one to pay all dues and fees that the HOA assesses. A Declaration of Covenants, Conditions, and Restrictions (CC&Rs) governs most HOAs. The CC&Rs set out the community’s rules, including what kinds of fees and assessments the HOA may charge residents. If you don’t pay the fees and assessments, a lien will usually automatically attach to your property. The HOA might also record the lien with the county recorder to provide public notice that the claim exists, even if your state doesn't require recordation.
Once an HOA has a lien on your property, it generally may foreclose, even if you’re current on your mortgage payments. So, you could potentially lose your home even if you're only a few hundred or thousand dollars behind on HOA assessments. Usually, the foreclosure will occur in much the same way it would if your mortgage lender foreclosed. Some states, though, impose limitations on an HOA's ability to foreclose.
And if the HOA begins a foreclosure, don’t panic; you might have a defense to the action, like:
To fight an HOA foreclosure, you might be able to raise one or more of these defenses. Here’s a summary of each potential defense.
Sometimes HOA liens are invalid because of the association’s incorrect accounting. Suppose you think the HOA improperly calculated the assessments and raise this defense. In that case, the HOA must show how all amounts were calculated, including assessments, late fees, interest, fines, and costs—all of which must be in the correct amount and have a basis provided for in the CC&Rs.
The fines, interest, late fees, management fees, and attorneys’ fees that the HOA assessed must be reasonable. For example, if the HOA forecloses due to $500 in back dues, but penalties and costs associated with the foreclosure, like fines and attorneys’ fees, increase the amount due to over $5,000, a judge might decide these charges are unreasonable.
Sometimes, an HOA might assess a charge that the CC&Rs don’t authorize. If the HOA then initiates foreclosure of the lien resulting from an unauthorized charge, the lien and foreclosure would be invalid.
If the HOA fails to adhere to state statutory requirements, the foreclosure might be invalid. For example, in California, the delinquent assessments must exceed $1,800, or the delinquency must be at least 12 months old before the HOA can initiate foreclosure proceedings. (Cal. Civ. Code §1367.4). If the HOA prematurely starts a foreclosure, the homeowner can raise the failure to comply with the statutory requirements as a defense.
Some states have laws that restrict or prohibit HOAs from foreclosing under certain circumstances, like if the HOA lien consists only of unpaid fines and related costs like attorneys’ fees. For example, Texas law prohibits HOAs from foreclosing liens that consist just of fines, attorney's fees associated with those fines, and amounts owed to the HOA for compiling, producing, and reproducing its records. (Tex. Prop. Code Ann. § 209.009). So, if you live in a state with laws regulating HOA foreclosures and the HOA violates those laws, you might have a defense.
Depending on the state and the CC&Rs, the HOA might have to first apply payments to assessments before another type of debt. So, a lien and subsequent foreclosure could be invalid if the HOA applied payments to a category other than assessments, like fines.
In some states, the lien must be perfected through recordation of the lien in the county records. If the HOA improperly records the lien, or doesn’t record the lien at all, you might have a defense to the foreclosure in a state that requires recording.
Also, if an HOA improperly records a lien against a property, you might be able to bring a wrongful lien claim against the HOA. In Arizona, for example, a homeowner is entitled to a minimum of $5,000 in damages against a party that improperly records a lien, plus attorneys’ fees and costs, as well as an additional $1,000 if the party refuses to release the incorrect assessment lien within twenty days from the date of a written request. (Ariz. Rev. Stat. Ann. § 33-420).
Generally, an HOA’s CC&Rs contain a provision governing how and when the association may foreclose. But in some cases, the CC&Rs might not authorize foreclosure.
The defenses discussed in this article are just a few of the possible defenses available to an HOA foreclosure. An attorney might be able to spot others after evaluating your circumstances. Also, HOA laws vary widely from state to state and are complicated. Additionally, how you’ll need to fight an HOA foreclosure differs depending on whether the foreclosure is judicial or nonjudicial.
So, if you're facing a foreclosure due to unpaid HOA assessments, consider talking to a foreclosure attorney in your state to discuss all legal options available in your particular situation.