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 Hawaii, 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.
Different sets of state laws often govern HOAs in subdivision communities and COAs. In Hawaii, planned community associations are governed by Haw. Rev. Stat. §§ 421J-1 to 421J-16. The Condominium Property Act (§§ 514B-1 through 514B-163) governs condominiums. (Effective January 1, 2019, Chapter 514A, called the "Condominium Property Act," was repealed. But the repeal didn't invalidate any condominium property regime validly created under that law before July 1, 2006. The Condominium Property Act applies to all condominiums in the state, provided that such application won't invalidate existing provisions of a condominium's governing documents if doing so would invalidate a developer's reserved rights.)
This article focuses on Hawaii's planned community association laws and the Condominium Property Act.
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 Hawaii, all sums the association assesses, but are unpaid, constitute a lien on the property. (Haw. Rev. Stat. § 421J-10.5(a), § 514B-146(a)).
An HOA or COA may generally include certain charges and penalties in the lien, including late fees, attorneys' fees and costs, interest (not exceeding 18% for COAs), and fines. (Haw. Rev. Stat. § 421J-10.5(a), § 514B-146(a), § 514B-144(b)).
You may request a written statement clearly indicating the amount of common expenses included in the assessment due. (Haw. Rev. Stat. § 421J-10.5 (c), § 514B-146(c)).
Once an HOA or COA has a lien, it might foreclose. In Hawaii, an HOA or COA may foreclose its lien judicially or nonjudicially. (Haw. Rev. Stat. § 421J-10.5(a), § 514B-146(a)). Though, HOAs and COAs have an alternative nonjudicial foreclosure process under state law, separate from nonjudicial foreclosures that mortgage lenders may conduct. (Haw. Rev. Stat. § 667-91 and following).
Under Hawaii's alternative nonjudicial foreclosure process, the association must prepare and record a Notice of Default and Intention to Foreclose, which must be served to the delinquent owner and other parties. The owner then has:
If the owner gives written notice of intent to cure or submits a payment plan, the foreclosure must be stayed during the 60-day cure period or during the term of the payment plan. (Haw. Rev. Stat. § 667-92). Associations must accept "reasonable" payment plans. Basically, a reasonable payment plan consists of payment of all assessments that become due after the date that the payment plan is proposed, plus a payment plan for the delinquent balance that can be completed within 12 months. Though, the board of directors may approve payment plans that last longer. (Haw. Rev. Stat. § 667-92).
If the parties don't agree on a payment plan and the default isn't cured, the association may sell the home at a public sale after publishing notice of the sale and providing notice to the homeowner and other parties. The sale may take place:
An HOA or COA can't nonjudicially foreclose a lien that arises solely from fines, penalties, legal fees, or late fees. The foreclosure of any such lien must be filed in court. (Haw. Rev. Stat. § 421J-10.5(a), § 514B-146(a)).
If the homeowner disputes the amount due, the homeowner may require the association to participate in mediation. Though, you have to pay the full amount of the assessments first and keep them current. (Haw. Rev. Stat. § 421J-10.5(c),(d), § 514B-146(d),(f)). Talk to a lawyer to find out the specific steps you need to take to require the association to go to mediation.
Proceedings to enforce an HOA or COA lien must begin within six years after the assessment became due. (Haw. Rev. Stat. § 421J-10.5(a), § 514B-146(a)). But if the homeowner files bankruptcy, the statute of limitations is tolled (suspended) until 30 days after the automatic stay is lifted. (Haw. Rev. Stat. § 421J-10.5(a), § 514B-146(a)).
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.
Generally, the priority of an HOA lien in Hawaii is determined by the association documents or, if no priority is provided in the association documents, by the date the lien is recorded. (Haw. Rev. Stat. § 421J-10.5(a)). A COA lien for unpaid assessments usually has priority over all other liens except:
But in Hawaii, six months' worth of unpaid regular monthly common assessments that were assessed during the six months immediately preceding the completion of the judicial or nonjudicial power of sale foreclosure get super-lien status. (Haw. Rev. Stat. § 421J-10.5(g)(h), § 514B-146(j)(k)).
If you're facing an HOA or COA foreclosure in Hawaii, consider consulting with a foreclosure attorney to discuss all legal options available in your particular circumstances.