Defenses to an HOA Foreclosure

Once a homeowners' association (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 fees.

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.

If your HOA begins a foreclosure, don't panic; you might have a defense to the action.

How an HOA Gets a Lien on Your Home

If you live in a planned development, your community might offer various amenities, like pools, parks, and clubhouses. These common areas are usually jointly owned by the development's homeowners, who bear the costs of maintaining, repairing, and replacing them when needed. To cover these costs, the homeowners must pay monthly (or yearly or quarterly) dues and special assessments (collectively called "fees") to the community's HOA.

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 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 the fees the HOA may charge residents.

A lien will usually automatically attach to your property if you don't pay the fees. 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.

If an HOA has a lien on your property, it generally may foreclose that lien.

Summary of Defenses to an HOA Foreclosure

Here are some defenses you might have to an HOA foreclosure, with more details below.

• The HOA charged you too much or charged you unreasonable fees.
• The CC&Rs don't authorize the HOA's charges.
• The HOA failed to follow state laws.
• The HOA misapplied your payments.
• The HOA failed to record the lien properly.
• The CC&Rs don't authorize the HOA to foreclose.

Incorrect Accounting or Overstated Charges

Sometimes, HOA liens are invalid because of the association's incorrect accounting. Suppose you think the HOA improperly calculated the fees and raise this defense. In that case, the HOA must show how all amounts were calculated, including fees, late charges, interest, fines, and costs.

These charges must be in the correct amount and have a basis provided for in the CC&Rs.

Unreasonable Charges

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 fees, 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.

The Governing Documents Don't Authorize the Fees

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.

Failure to Follow the Foreclosure Statutes

The foreclosure might be invalid if the HOA fails to adhere to state statutory requirements. For example, in California, the delinquent fees 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, you might have a defense if you live in a state with laws regulating HOA foreclosures and the HOA violates those laws.

Misapplication of Payments

Depending on the state and the CC&Rs, the HOA might have to first apply payments to fees before another type of debt. So, a lien and subsequent foreclosure could be invalid if the HOA applied payments to a category other than fees, like fines.

Improper Recording of the Lien

In some states, the lien must be perfected by recording 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 lien within twenty days from the date of a written request. (Ariz. Rev. Stat. Ann. § 33-420).

Governing Documents Don't Authorize the HOA to Foreclose

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.

When to Talk to an Attorney

The defenses discussed in this article are just a few 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. And 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 fees, consider talking to a foreclosure attorney in your state to discuss all legal options available in your particular situation.