If you own a home that's part of a homeowners' association (HOA) and fall behind in your HOA dues or assessments, the HOA can foreclose its lien. But what happens to other mortgages you have on the property when the HOA forecloses? The answer depends on the lien priority of those mortgages.
Generally, lien priority is determined by the recording date of the lien. The general rule is first in time, first in priority. Some liens though, like property tax liens, have automatic superiority over essentially all prior liens. Typically, the matter of priority comes up in foreclosure actions because, if a senior lienholder forecloses, it wipes out any junior liens. But if a junior lienholder forecloses, its foreclosure is subject to the senior lien.
Most HOAs have the power to place a lien on your home if you become delinquent in paying the monthly dues or special assessments. In many states, the priority of the lien is determined by the recording date of the Declaration of Covenants, Conditions, and Restrictions (CC&Rs) and no further recordation of the lien is required.
HOA liens are usually junior to a first mortgage. This is because the HOA lien is either:
So, the first-mortgage lien will remain on the property following the HOA foreclosure and the purchaser at the foreclosure sale will take title subject to the lien of the first mortgage holder.
Some states give certain HOA liens super priority. In super-lien states, generally, a certain number of months worth of past-due HOA assessments are given super-lien status and are senior to even a first mortgage. Any amounts owed beyond the super lien are then junior to the mortgage. If the HOA forecloses a super lien, it can potentially, in some cases, eliminate the 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. To learn more, see What Happens to Liens and Second Mortgages in Foreclosure?)
If a second mortgage was recorded after the HOA lien is perfected, the second mortgage lien would be eliminated by the HOA foreclosure. On the other hand, if the second mortgage was recorded prior to the HOA lien, the mortgage lien would typically remain on the property following the HOA foreclosure.
In some cases though, an HOA lien might be senior to the second mortgage lien even if the HOA lien was recorded after the date of the second mortgage. For example, say a lien for assessments is automatically created when the Declaration creating the HOA is recorded. While the HOA doesn't have to record the lien later on down the line if the owner falls behind in assessments, sometimes the HOA will go ahead and record the lien anyway. Because the Declaration was recorded before the second mortgage, the HOA lien is technically "senior" to that mortgage—even if the HOA lien was recorded after the second mortgage. As a result, the second mortgage lien will then be wiped out in an HOA foreclosure.
If an HOA initiates a foreclosure against you, consider talking to a foreclosure attorney to learn about different options that might be available to you.