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 COAs and HOAs. New York's Condominium Act (N.Y. Real Prop. Law §§ 339-d through 339kk) governs COAs, while HOAs are often incorporated as nonprofit corporations and are subject to New York's Not-for-Profit Corporation Law (N. Y. Not-For-Profit Corp. § 101 and following). Rules regarding the operation of an association, including those covering assessments liens, can also be found in the association's governing documents, like the Declaration of Covenants, Conditions, and Restrictions (CC&Rs) or Declaration of Condominium.
If your home is part of a COA or HOA and you fall behind in assessments in New York:
If the COA or HOA 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 governing documents, like the CC&Rs, and state law, a COA or HOA 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.
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.
Charges a COA may include in the lien. Under New York law, a COA lien may include unpaid common charges plus interest, and is effective from and after the date that a verified notice of lien is recorded in the county records. (N.Y. Real Prop. Law § 339-z, aa). The lien expires six years after the filing date. (N.Y. Real Prop. Law § 339-aa).
Charges an HOA may include in the lien. An HOA, generally, is allowed to include charges like the following in its lien:
To learn what charges an HOA may charge, review the association's governing documents, such as the CC&Rs.
If you default on the assessments, the COA or HOA may foreclose. State law says that a COA lien may be foreclosed by suit, like a mortgage of real property. (N.Y. Real Prop. Law § 339-aa). To find out about an HOA's right to foreclose, review the association's governing documents, like the CC&Rs.
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 current on your mortgage payments. 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.
New York's Condominium Act states that a COA lien is prior to all other liens, except for:
To find out the priority of an HOA lien, check the association's governing documents.
New York laws covering COA or HOA foreclosures are complicated and extensive. If you're facing a COA or HOA foreclosure in New York, consider consulting with a foreclosure attorney to discuss all legal options available in your particular circumstances.