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. In Wisconsin, the Condominium Ownership Act (Wis. Stat. §§ 703.01 through 703.38) governs COAs. HOAs in Wisconsin are often incorporated as nonprofit corporations and are subject to the state statutes that govern such corporations, including Wis. Stat. § 779.70, which covers maintenance liens by nonprofit corporations. HOAs are also controlled by their governing documents, which include the Declaration of Covenants, Conditions, and Restrictions (CC&Rs) and bylaws.
If your home is part of a COA or HOA and you fall behind in assessments in Wisconsin:
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.
In Wisconsin, a COA is entitled to a lien if the association files a statement of lien in the county records within two years after the date the assessment becomes due. Once the lien is recorded, it is effective as of the date the assessment became due, regardless of when the claim is filed within the two-year period. (Wis. Stat. § 703.165(3)).
If you make a written request, the association must send a statement of the amount due within ten business days. If the COA fails to provide this statement, any lien that hasn't been recorded is extinguished. (Wis. Stat. § 703.165(4)).
If an assessment remains unpaid for a period of 60 days from the date of the levy, an HOA may file a claim of lien. The HOA must file its lien in the county records within six months of the due date. (Wis. Stat. § 779.70(4)(a)).
If you're part of an HOA, check the association's governing documents to learn more about the association's right to place a lien on your home if you don't pay the assessments.
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 Wisconsin law, unless the governing documents provide otherwise, a COA is permitted to include the following in its lien:
Charges an HOA may include in the lien. To find out which charges a Wisconsin HOA may include in its lien, check the association's governing documents.
Once a COA or HOA has a lien, it might foreclose. State laws often place particular due process requirements on COAs and HOAs regarding how and when an association can foreclose an assessments lien. For instance, Wisconsin law requires COAs to send a preforeclosure notice and, for both COA and HOA liens, the foreclosure goes through the court system.
A COA must mail written notice to a condo owner ten days before starting a foreclosure. (Wis. Stat. § 703.165(7)).
In Wisconsin, a COA may foreclose its lien in the same way that a mortgage on real property is foreclosed. (Wis. Stat. § 703.165(7)). Because mortgage foreclosures in Wisconsin are judicial, which means the COA will file a lawsuit to begin the foreclosure. The COA must bring the action within three years after recording the lien. (Wis. Stat. § 703.165(7)).
To find out about an HOA's right to foreclose if you become delinquent in paying the assessments, read the association's governing documents.
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.
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.
In Wisconsin, a COA lien has priority over some other kinds of liens, but not others like:
An HOA's governing documents often address lien priority and typically state that HOA liens are subordinate to a first mortgage. To find out the priority of an HOA lien in Wisconsin, check the association's governing documents.
If you're facing a COA or HOA foreclosure in Wisconsin, consider consulting with a foreclosure attorney to learn more about state laws and to discuss all legal options available in your particular circumstances.