Can a Homeowners Association Foreclose on Your Home for Failure to Pay Fees?
When John needed emergency heart surgery he and his wife Sarah opted to divert their $1,200 a year homeowner’s fees to help pay part of John’s medical expenses. What they didn’t know was that their homeowner’s association could, and would foreclose on their home for their failing to pay their association fees. They fought the foreclosure, but lost, and ended up spending more money than if they’d just paid off the fees when they received their notice and taken out a loan.
What is a Homeowners Association (HOA) and where does it get its power?
HOAs are legal entities and get their power from the law. They’re essentially tiny governments with the legal power to tax (assessments) their members. They are usually created by the original developer of a property, development or land tract in order to manage and maintain the property’s landscaping, security, snow removal and repairs of shared facilities – like clubhouses and pools.
Twenty-two states (more states pending) give HOAs a super lien status known as the right to apply “an assessment priority lien.” This means the HOA is given priority lien status even over the primary lender for the property. This allows HOAs to foreclose on the property of homeowners for delinquent HOA fees. The length of time is typically 6-to-9 months, but it varies from HOA to HOA and state-to-state.
HOA rules are set forth in a document called the “Declaration of Covenants, Conditions, and Restrictions (CC&Rs). These CC&Rs dictate what homeowners can and can’t do on their property. Common CC&Rs may control whether a homeowner can have an RV or boat parked in the open on their property, or whether they can leave their garage doors open and a car in the driveway, have yard decorations, or even fly a flag from their home. Because they’re made up of community members homeowners have some say in how rules or enforced or where funds are directed, but they rarely have any say in the CC&Rs.
How can they just seize my house like that?
HOA liens and foreclosures don’t just happen overnight. They take months. Homeowners typically see it coming. Like John and Sarah, many financially stressed homeowners will often stop paying their homeowners fees in order to save money or make their mortgage payments. Since HOA fees can range from $100 to $1,000 a month on top of a mortgage and other fees some homeowners may delay payment of their fees to cover an unexpected expense like a lay-off, car repairs or other expense. They believe or hope that they can make up the fees before nonpayment becomes a legal matter. This nonpayment of fees often means other association members have to pay more to make up the difference in the meantime.
Defenses to an HOA Foreclosure:
You can fight a foreclosure, but you’ll have to hope the HOA is sloppy in their foreclosure process. Your defenses are:
- The HOA is not authorized by its governing documents to foreclose. The time to learn about what an HOA can and cannot do regarding foreclosures, liens and attachments is before you buy a home with an HOA. If the Declaration of Covenants, Conditions, and Restrictions (CC&Rs), don’t give the HOA the right to foreclose, they can’t. Make sure you know exactly what your CC&Rs state. Many times the lien automatically attaches once you fail to pay a set amount of fees. Not all CC&Rs have provisions authorizing foreclosure.
- The HOA did an incorrect accounting of their fees or overstated the charges. This happens, not a lot, but if the HOA calculated the assessments improperly, including late fees, interest, fines, and costs, you may have an argument.
- Misapplication of payments. It varies from state-to-state of course, but in general, any payments you make to an HOA in regards to your fees, or past or overdue fees must be applied towards the assessments before any other category, like fines or attorney’s fees. A foreclosure may be defensible or invalid if the HOA applied your payments to say, attorney’s fees before your assessments.
- The HOA failed to follow the assessment lien foreclosure statutes. You have to abide by the HOA contracts, but they must abide by the state’s laws and statutory requirements. State requirements vary, but most have a stated limit for the amount the assessments must exceed before the HOA can initiate foreclosure proceedings.
- Unreasonable charges. Like any organization, HOAs can get greedy and be unreasonable. The law states that fines, interest charges, management fees and attorney’s fees assessed against you must be reasonable. Unfortunately, it’s up to the judge to determine what “unreasonable” means. If you owe $1,500 in back fees and the cost of attorneys, fines and associated costs exceeds $10,000 to collect the $1,500, a judge is most likely to rule those are unreasonable fees.
- Bankruptcy. Although not a defense, one last resort to avoiding foreclosure of your home to unpaid HOA assessments is bankruptcy. In many states, it is possible to discharge dues, fines, and fees through bankruptcy court. Discuss this option with your attorney before filing bankruptcy.
There are many other defenses you can mount, but it will take an attorney, which will cost you more than the HOA fees and fines might. And, most of those defenses rest on the change the HOA made a mistake in filing, recording, or assessing the lien. Your best chance at avoiding foreclosure is to pay your HOA fees when they’re due.