If you own a home that's part of a homeowners' association (HOA) and fall behind in your dues or assessments, the HOA can probably foreclose its lien. But what happens to other mortgages you have on the property when an HOA forecloses?
The answer depends on the priority of those mortgages.
Generally, priority is determined by a lien's recording date. The general rule is "first in time, first in priority." Under this general rule, a lien that's recorded first gets the highest priority. But, of course, this rule has exceptions.
Again, the lien that's recorded first usually gets the highest priority. But some liens, like property tax liens, have automatic superiority over essentially all previously-recorded liens.
The matter of priority typically comes up in foreclosure actions. In a foreclosure, priority determines who gets paid first. A first lien has a higher priority than other liens and gets paid first from the foreclosure sale proceeds.
After the first lien is paid off, any remaining funds are paid to the second lienholder until that lien is fully paid. A lien with a low priority might not get any money after a foreclosure sale.
Also, when a senior lienholder forecloses, the foreclosure wipes out any junior liens. But if a junior lienholder forecloses, the foreclosure is subject to senior liens.
A mortgage's priority is generally determined by its recording date.
On the other hand, in many states, the priority of an HOA lien is determined by the recording date of the Declaration of Covenants, Conditions, and Restrictions (CC&Rs). Often, no further recording of the lien in the county records is required. But, depending on the law and the CC&Rs, the lien might attach when the assessments became due or when the HOA recorded a notice of lien in the land records. The lien's priority is based on when the lien attaches to the property.
Also, state law or the CC&Rs sometimes adjust an HOA lien's priority.
An HOA lien is usually junior to a first mortgage because the lien is either:
So, a first-mortgage lien will usually remain on the property following an HOA's foreclosure. The purchaser at the foreclosure sale takes the property's title subject to the lien of the first-mortgage holder.
Some states give certain HOA liens "super priority." Generally, in super-lien states, a specific number of months' worth of past-due HOA assessments get super-lien status. So, they're senior to even a first mortgage. Any amounts owed beyond the super lien are then junior to the first mortgage.
If an HOA forecloses a super lien, it can potentially eliminate a first mortgage and any other junior mortgages on the property. Keep in mind, though, that even if a mortgage lien is eliminated, you're not off the hook for the debt.
If a second mortgage were recorded after the HOA lien is perfected, an HOA's foreclosure would eliminate the second-mortgage lien. On the other hand, if the second mortgage were recorded before the HOA lien arose and was perfected, the mortgage lien would typically remain on the property following the HOA's foreclosure.
If an HOA initiates a foreclosure against you, consider talking to a foreclosure attorney to learn about available options.