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 condominium owners' association (COA) or homeowners' association (HOA). 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 COAs and HOAs 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.
If your home is part of a COA or HOA and you fall behind in assessments in Kentucky:
If the HOA initiates a foreclosure, you might have a defense to the action, such as the HOA charged you too much, charged you unreasonable fees, or failed to follow state laws. Or you might be able to negotiate a way to get caught up on the overdue amounts and save your home. For example, you might be able to pay off the entire delinquency, negotiate a reduced payoff amount, or enter into a repayment plan.
Different sets of state laws often govern HOAs in subdivision communities and COAs. In Kentucky, the Kentucky Condominium Act (Ky. Rev. Stat. Ann. §§ 381.9101 through 381.9207) applies to all condominiums created after January 1, 2011, and its provisions also generally apply to condominiums previously created as far as events or circumstances occurring after this date.
HOAs in Kentucky are often incorporated as nonprofit corporations and are subject to the state statutes that govern such corporations. The Kentucky Nonprofit Corporation Act can be found at § 273.161 et seq. of the state statutes. Also, the policies regarding the operation of the HOA, including those regarding assessments liens, can be found in the association's governing documents, like the Declaration of Covenants, Conditions, and Restrictions (CC&Rs) and bylaws.
Based on the association's CC&Rs and state law, a COA or HOA can usually get a lien on a property if the homeowner is delinquent in paying the assessments. Once a homeowner becomes overdue on the assessments, a lien will usually automatically attach to the home. 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.
Some states require a COA to record its lien in the county where the property is located. But under Kentucky law, the recording of the declaration constitutes record notice of the existence of a COA lien, and no further recordation for any claim of lien is required. (Ky. Rev. Stat. Ann. § 381.9193(4)).
To find out when an HOA lien attaches to the property, check the association's governing documents.
State law and the COA or HOA's governing documents will usually set out the type of charges that may be included in a lien.
In Kentucky, unless the declaration provides otherwise, a COA can include the following in its lien:
If you make a written request, the COA must provide you with a statement telling you the amount of the unpaid assessments within ten business days after it receives your request. (Ky. Rev. Stat. Ann. § 381.9193(8)).
To find out which charges a Kentucky HOA may include in its lien, check the association's governing documents.
Once a COA or HOA has a lien, it may foreclose.
In Kentucky, a COA may foreclose its lien in the same manner as a mortgage on real estate. (Ky. Rev. Stat. Ann. § 381.9193(1)). A COA lien for unpaid assessments is extinguished unless the COA initiates an action to enforce the lien within five years after the full amount of the assessments becomes due. (Ky. Rev. Stat. Ann. § 381.9193(5)).
An HOA's foreclosure rights come from the governing documents of the association. To find out the specific notice and foreclosure procedures that the HOA must follow, check the association's governing documents.
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 paid up on your mortgage. Instead, lien priority determines what happens in a foreclosure.
Generally, a foreclosure by a COA or HOA usually won't eliminate a first mortgage because the association's lien is normally lower in priority.
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.
Under Kentucky law, a COA's lien is prior to all other liens, except for:
To find out the priority of an HOA lien, check the association's governing documents.
If you're facing a COA or HOA foreclosure in Kentucky, consider consulting with a foreclosure attorney to learn more about how the law applies to your situation and to discuss all legal options available in your particular circumstances.