In the state of Maryland, a home owners association can foreclose on the home of an association member who fails to pay homeowners association (HOA) dues. However, in 2010 the governor of Maryland signed new protections for homeowners into the state's laws that make it more difficult for lien holders, including homeowners associations, to foreclose on residential property.
In Maryland, when you buy a home in a neighborhood that belongs to an HOA, the mortgage or deed of trust document usually contains a power of sale clause. A third party holds the power of sale clause while you live in the home. If you default on your HOA fees, the HOA can activate the power of sale clause and foreclose on your home. Foreclosures involving a power of sale clause are nonjudicial, which means a judge does not preside over the case and you do not have the opportunity to defend yourself in court.
In the past, an HOA in Maryland could file for foreclosure if you fell more than 45 days behind on your association payments. In 2010 state lawmakers amended the law, and an HOA must now wait until you are 90 days behind on your payments before filing for foreclosure. The HOA must set a date for a foreclosure sale and publicize the sale in local newspapers for at least three weeks prior to the foreclosure auction. The trustee of deed or the sheriff must conduct the sale. The HOA must mail a notice of sale to your last known address not more than 30 days -- but not less than 10 days -- before the auction date.
In Maryland, lenders as well as HOAs have the right to foreclose on your home if you fall behind on your house payments. Generally, a lender has the first lien on your home, which means the proceeds from the sale of your home are first applied to your mortgage debt and residual funds are then used to satisfy other liens. However, in 2011 the state of Maryland enacted a new law, which says that if you are delinquent on your HOA dues, up to $1,200 of proceeds from the foreclosure sale are applied to your HOA debt, and these funds are disbursed before your lender can claim any of the sale proceeds.
In many states, HOAs are reluctant to foreclose on homes because mortgage lenders have the first claim on the proceeds from foreclosure sales, and if the sale does not raise enough funds to cover the mortgage debt, then the HOA ends up with nothing. The fact that HOA claims are settled ahead of the claims of lenders in Maryland means that HOAs in Maryland have more to gain and less to lose than HOAs considering a foreclosure filing in another state. Your HOA can foreclose even if you have never missed a mortgage payment, so you should ensure you stay current on your HOA dues and loan payment if you want to keep your home.