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 New Jersey:
If the COA or HOA initiates a foreclosure, you might have a defense to the action, such as the association charged you too much, imposed 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.
The New Jersey Condominium Act (N.J. Stat. Ann. § 46:8B-1 and following) governs condominiums, and the Planned Real Estate Development Full Disclosure Act (N.J. Stat. Ann. § 45:22A-21 and following) governs HOAs. The rules regarding the operation of a COA or HOA, including those regarding assessments liens, can also be found in the association's governing documents, such as the Declaration of Covenants, Conditions, and Restrictions (CC&Rs).
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.
In New Jersey, a COA lien becomes effective once the association records a claim of lien in the county records. (N.J. Stat. Ann. § 46:8B-21(a)). If you make a written request, the COA must provide you with a statement setting forth the amount of the unpaid assessments within ten days after it receives your request. (N.J. Stat. Ann. § 46:8B-21(d)).
To find out when an HOA lien becomes effective, 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 the lien. If authorized by the association's governing documents, a COA is permitted to include the following in its lien:
To find out which charges a New Jersey HOA may include in its lien, check the association's governing documents.
Once a COA or HOA has a lien, it may foreclose.
In New Jersey, a COA may foreclose its lien in the same manner as a mortgage on real estate. (N.J. Stat. Ann. § 45:8B-21(f)). So, the COA has to file a lawsuit in court to foreclose.
HOAs, too, may foreclose a lien in the same manner as a mortgage on real estate. Your association's governing documents might also set out particular foreclosure requirements. (N.J. Stat. Ann. § 45:22A–44.1)
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.
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.
A COA's lien is generally prior to all other liens, except for:
Under certain circumstances, a lien for delinquent assessments has priority over previous liens. This type of lien is called a "super lien." In New Jersey, six months' worth of delinquent assessments (not including late charges, penalties, interest, or collection fees or costs) get super-lien status. (N.J. Stat. Ann. § 46:8B-21).
HOA liens also get priority over prior recorded mortgages and other liens for six months' worth of unpaid customary assessments. (N.J. Stat. Ann. § 45:22A–44.1).
If you're facing a COA or HOA foreclosure in New Jersey, 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.