Tennessee HOA and COA Foreclosures

If your home is part of a condominium owners' association (COA) or homeowners' association (HOA) in Tennessee and you fall behind in assessments:

• The COA or HOA can usually get a lien on your home if you become delinquent in paying the assessments.
• After you default on the assessments, the COA or HOA may foreclose.
• Lien priority determines what happens to other liens, like a mortgage, if a COA or HOA lien is foreclosed.

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.

How COA and HOA Assessments Generally Work

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 an HOA or COA. If you fall behind in the assessments, the association will likely initially 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 might try other ways to collect from you. The association could take away your privileges to use the common facilities or file a lawsuit for a money judgment against you.

Based on the association's Declaration of Condominium or Declaration of Covenants, Conditions, and Restrictions (CC&Rs) and state law, most COAs and HOAs also have the power to get a lien on your property if you become delinquent in assessments. Once you fall behind in payments, a lien will usually automatically attach to your property. Sometimes, 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.

An assessments lien clouds the title to the property, hindering your ability to sell or refinance the home. In addition, the property can also be foreclosed to force a sale to a new owner—even if the property has a mortgage.

How COA and HOA Liens Work in Tennessee

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.

COA Liens in Tennessee

In Tennessee, a COA is entitled to a lien for assessments or fines from when they became due. If an assessment is payable in installments, the lien amount is equal to the full amount of the assessment from when the first installment became due. (Tenn. Code Ann. § 66-27-415(a)(1),(4)).

The recording of the COA's governing documents constitutes record notice of the lien. The lien is perfected (made effective) by recording it in the county records. (Tenn. Code Ann. § 66-27-415(d)). (However, a lien for delinquent assessments up to the priority-payment amount or "super lien" is perfected without recording. See "Priority of COA Liens" below.)

HOA Liens in Tennessee

If you're part of an HOA, check the CC&Rs to learn about the association's right to place a lien on your home if you don't pay the assessments.

Charges a COA or HOA May Include in the Lien

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

In Tennessee, unless the declaration provides otherwise, a COA is permitted to include charges like the following in its lien:

• past-due assessments
• late charges
• reasonable fines for violations of the declaration, bylaws, rules, and regulations (after giving the owner notice and an opportunity to be heard)
• certain fees (like for the preparation and recordation of amendments to the declaration), and
• interest. (Tenn. Code Ann. § 66-27-415(a)(4)).

To find out how much you owe in assessments, you can make a written request to the COA. The association then has to provide you with a written statement of the amount due within seven days after receiving the written request. (Tenn. Code Ann. § 66-27-415(h)).

Charges an HOA May Include In the Lien

To find out which charges a Tennessee HOA may include in its lien, check the association's governing documents.

COA and HOA Lien Foreclosures in Tennessee

Once a COA or HOA has a lien, it might foreclose.

COA Foreclosures

In Tennessee, a COA lien may be foreclosed nonjudicially if permitted by the COA's governing documents and so long as the COA gives proper notice of the foreclosure to the unit owner (see "How Tennessee Nonjudicial Foreclosures Work" below). (Tenn. Code Ann. § 66-27-415(a)(2)).

A COA must start the foreclosure within six years after the date the lien for the assessment becomes effective. Otherwise, the lien is extinguished (eliminated). (Tenn. Code Ann. § 66-27-415(e)).

HOA Foreclosures

Read the association's governing documents to find out about an HOA's right to foreclose if you become delinquent in paying the assessments.

COA or HOA Liens and Your Mortgage

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.

What Is Lien 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.

Priority of COA Liens

In Tennessee, a COA lien is prior to all other liens, except for:

• liens and encumbrances recorded before the COA records the condo declaration
• real estate tax liens (and other governmental assessments or charges), and
• a first or other contemporaneous mortgage or deed of trust on the condo that was recorded before the delinquency date of the assessment. (Tenn. Code Ann. § 66-27-415(b)).

Under certain circumstances, though, a COA lien for delinquent assessments gets priority over a lender's first mortgage or deed of trust. This type of lien is called a "super lien." In Tennessee, six months of delinquent common expense assessments have super-lien status but not more than 1% of the maximum principal indebtedness of a lien secured by the first mortgage or deed of trust. (Tenn. Code Ann. § 66-27-415(b)(2)).

But under Tennessee law, a COA foreclosure can't wipe out a first mortgage or deed of trust in a foreclosure—even if it has a super lien. (Tenn. Code Ann. § 66-27-415(b)(2)). The COA has only a payment priority interest, meaning it has the right to receive six months' worth of delinquent common expense assessments out of the foreclosure sale proceeds.

Priority of HOA Liens

HOA CC&Rs often address lien priority and typically state that HOA assessments and liens are subordinate to a first mortgage or deed of trust. To find out the priority of an HOA lien in Tennessee, check your association's governing documents.

Talk to a Lawyer If You're Facing a COA or HOA Foreclosure

If you're facing a COA or HOA foreclosure in Tennessee, consider consulting with a foreclosure attorney to learn more about state laws, how they apply to your situation, and to discuss all legal options available in your particular circumstances.