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.
Different sets of state laws often govern HOAs in subdivision communities and COAs. In Florida, one set of laws covers HOAs in planned communities (Chapter 720 of the Florida Statutes), and another covers COAs (Chapter 718 of the Florida Statutes). The two sets of laws are very similar. In Florida, 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.
Based on the association's Covenants, Conditions, and Restrictions (CC&Rs) and state law, an HOA or COA can usually get a lien on your home if you're delinquent in paying the assessments. 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 Florida, HOA and COA liens are recorded.
Under Florida law, an HOA may not file its lien unless it first provides the homeowner with a written demand by registered or certified mail, return receipt requested, and by first-class mail, that provides 45 days to pay all amounts due. (Fla. Stat. Ann. § 720.3085(4)). A COA can't file a lien until 30 days after a notice of intent to file a lien has been delivered by certified mail, return receipt requested, and by first-class mail, to the owner. (Fla. Stat. Ann. § 718.121(4)).
Florida law sets out the types of charges that an HOA or COA may include in an assessments lien. (Fla. Stat. Ann. § 720.3085(1)(a), § 718.116(5)(b)).
A homeowner can force the HOA or COA to enforce a recorded claim of lien by recording a notice called a "Notice of Contest of Lien." The exact format that you must use for the notice is included in the statute. (Fla. Stat. Ann. § 720.3085(1)(b), § 718.116(5)(c)). The association then generally has 90 days after being served with the notice to file an action to enforce the lien, like by foreclosing. If the action isn't filed within the 90-day period, subject to a couple of exceptions, the lien is void. (Fla. Stat. Ann. § 720.3085(1)(b), § 718.116(5)(c)).
For the lien to remain valid, a COA must initiate an action to enforce the lien within one year from the date that the lien was recorded. (Fla. Stat. Ann. § 718.116(5)(b)). Though, this statute of limitations is extended if the association can't file a foreclosure action because of an automatic stay in the owner's (or another party's) bankruptcy.
State laws often place particular due process requirements on HOAs and COAs regarding how and when an association can foreclose an assessments lien. For instance, Florida law requires a preforeclosure notice and that the foreclosure go through the court system.
An HOA can't initiate a foreclosure until 45 days after the homeowner has been provided with a notice of the association's intent to foreclose and collect the unpaid amount. (Fla. Stat. Ann. § 720.3085(5)).
A foreclosure judgment can't be entered until at least 30 days after the COA gives the owner written notice of its intention to foreclose its lien to collect the unpaid assessments. (Fla. Stat. Ann. § 718.116(6)(b)). The COA will be considered to have met this notice requirement if:
If the notice is not given at least 30 days before the foreclosure action is filed, and if the unpaid assessments—including those coming due after the claim of lien is recorded—are paid before the entry of a final judgment of foreclosure, the COA can't recover attorneys' fees or costs. (Fla. Stat. Ann. § 718.116(6)(b)).
Generally, an HOA or COA foreclosure will be either judicial or nonjudicial, depending on state law and the CC&Rs. In Florida, an HOA or COA may foreclose a lien for assessments in the same manner in which a mortgage of real property is foreclosed. (Fla. Stat. Ann. § 720.3085(1)(c), § 718.116(6)(a)). So, because mortgages in Florida are foreclosed judicially, the HOA or COA will file a lawsuit in court to foreclose its lien.
In an HOA foreclosure, at any time before the entry of a foreclosure judgment, the homeowner may serve and file with the court a "qualifying offer" to pay all amounts secured by the lien (plus accrued amounts while the offer is pending) for the HOA to consider. But you can't submit an offer if:
Generally, though, HOAs are willing to accept a qualifying offer because it means you'll pay off the debt.
How to submit a qualifying offer. The form to use to make a qualifying offer is provided in the statute. (Talk to a lawyer if you need help finding the statute or preparing an offer.) A homeowner may only make one qualifying offer during a foreclosure action. (Fla. Stat. Ann. § 720.3085(6)).
What happens after you make a qualifying offer. Once the homeowner files such an offer with the court, the foreclosure action is stayed (postponed). The stay lasts for the period stated in the qualifying offer, which may not exceed 60 days following the date of service of the qualifying offer and no sooner than 30 days before the date of trial, arbitration, or the beginning of the trial docket, whichever occurs first. The stay gives the parcel owner time to pay the qualifying offer amount to the association, plus any amounts accrued while the offer is pending. (Fla. Stat. Ann. § 720.3085(6)(b)). If the homeowner doesn't comply with the terms of the qualifying offer, the stay is lifted, and the HOA may proceed with obtaining a foreclosure judgment. (Fla. Stat. Ann. § 720.3085(7)).
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 might adjust lien priority.
Two Florida laws address HOA and COA lien priority. According to changes in 2008 to the HOA law and changes in 1992 to the COA law, for purposes of lien priority, you use the date that the HOA or COA recorded its CC&Rs or Declaration of Condominium. (Fla. Stat. Ann. § 720.3085(1), § 718.116(5)(a)). So, an HOA or COA lien might get priority over another lien recorded before you became delinquent on the assessments if the association's declaration was recorded even earlier.
When it comes to first mortgages of record, though, an HOA or COA lien is effective from the date the association records the lien in the public records in the county where the property is located. (Fla. Stat. Ann. § 720.3085(1), § 718.116(5)(a)). So, a foreclosure by an HOA or COA usually won't eliminate a first mortgage because the association's lien is normally lower in priority.
If you're thinking about buying a home in an HOA or COA community in Florida—or you already live in one—take the time to familiarize yourself with state association laws, and the community's governing documents, like the CC&Rs. That way, you'll understand how the association operates and any legal restrictions on it. If you have any questions about the HOA's governing documents or your legal rights, consider talking to a real estate lawyer.
If you're facing an HOA or COA foreclosure in Florida, consider consulting with a foreclosure attorney to discuss all legal options available in your particular circumstances.