If you don’t pay the fees and special assessments that your homeowners’ association imposes, in most cases, a lien will usually automatically attach to your property. In certain states, homeowners’ association liens are given “super-lien” status.
Read on to learn more about super liens and how they affect a foreclosure.
To fully understand how homeowners’ association (HOA) super liens work, you must understand some basic terminology.
Generally, when you purchase a home, you take out a first mortgage, which is recorded first and becomes the first lien. In some cases, you might take out a second mortgage, which is recorded second and becomes the second lien. Priority is generally established by the recording date.
Lien priority determines the order in which lien holders are paid the proceeds of a foreclosure sale. In most cases, especially when a property is underwater, all of the proceeds from a foreclosure sale will go to the first-mortgage holder. Junior lien holders often get nothing. (Learn more about lien priority in our article What Happens to Liens and Second Mortgages in Foreclosure?)
An HOA assessment lien is a lien on a homeowner’s property if he or she becomes delinquent in paying the monthly fees or any special assessments (usually collectively referred to as “assessments”). The lien will typically automatically attach to that homeowner's property, commonly as of:
Often, the CC&Rs will contain a provision stating that any HOA lien is subordinate to a first mortgage, even if the mortgage was recorded after the assessment lien was perfected. State law may also determine the priority of an assessment lien. In this manner, HOA liens are often junior to first-mortgage liens.
A super lien is a category of lien that, pursuant to state statute, is given a higher priority than all other types of liens. When it comes to HOA assessment liens, a super lien refers to that portion of a homeowners' association lien that is given higher priority than even the first-mortgage holder, placing the interest of the HOA in front of the first mortgage. (Learn more about the different types of liens in our article Types of Property Liens.)
Approximately 20 states have laws that give HOA assessment liens (or, in some cases, condominium association or "COA" liens) super-lien status under certain circumstances.
In Colorado, for example, HOAs have a super lien that has priority over a first deed of trust to the extent of six months worth of common expense assessments which would have become due before a foreclosure. (Colo. Rev. Stat. § 38-33.3-316). In Nevada, nine months of assessments have super-lien status. (Nev. Rev. Stat. § 116.3116).
If the HOA forecloses a super lien, it could eliminate the first mortgage. So, when a lender is notified that an HOA has initiated a foreclosure due to unpaid assessments in a super-lien state, in most cases, the lender will pay off the super-lien amount to preserve its position as the first-lien holder.
The lender then tacks the amount it paid on to the borrower's total mortgage debt and seeks reimbursement from the borrower. If the borrower fails to reimburse the lender, the lender might foreclose.
When the first-mortgage holder forecloses in a super-lien state, the HOA is repaid first up to the allowable amount of the super lien, which is commonly a certain number of months of overdue assessments. Generally, if the first mortgage holder forecloses, but it is not a super-lien state, the HOA assessment lien gets extinguished in the foreclosure.
Once the foreclosure sale has been completed and all redemption periods have expired, the purchaser at the foreclosure sale is responsible for paying current and future HOA assessments.
A common justification for giving super-lien status to HOA assessment liens is that HOAs help preserve the value of the community. It has been argued, especially during the housing crisis, that neighborhoods suffer from deferred maintenance and other problems if their fees remain unpaid. Super liens help ensure that HOAs receive the funds needed to maintain their community.
If you have further questions about how super liens work or about lien laws in your state, consider talking to a local lawyer.