A creditor has various ways of collecting an unpaid debt, including pursuing the debtor's assets through wage garnishments and seizures of funds in a bank account. A condo is an asset of the condo owner and some creditors utilize a lien on a condo to collect on past due debt. A lien is a security interest in the title of a property, so if you own a condo it's wise to understand how a lien can impact your rights to that property.
Liens are initiated for varying reasons, including a court-ordered judgment against you, and are often placed because the condo owner owes money. A homeowners association will place a lien on a condo if the condo owner has not paid the HOA dues required under the homeowner's association's agreement. This is the most typical reason for the placement of a lien on a condo. Some states require the HOA to file the lien with the recorder of deeds. In other states, a lien is automatically assessed once the condo owner becomes delinquent on the HOA dues.
Once a HOA places a lien against the condo, the condo cannot be sold until the lien is paid. Furthermore, if the lien isn't paid, the HOA has the right to seek to foreclose on the property. A foreclosure means you will no longer be the owner of the condo. Some states require judicial foreclosures, meaning the foreclosure requires a hearing before the judge and the judge must issue a court order to allow the foreclosure. Other states are non-judicial, meaning the HOA does not have to get a court order prior to initiating foreclosure against the property.
A mortgage or tax lien on the condo is superior to the lien placed by the condo association. Unless those are paid, this will prevent the HOA from selling the condo but the HOA will be able to lease the condo to someone else at market value. Also, a HOA foreclosure means the HOA takes possession of the property from the condo owner but it does not eliminate the owner's responsibility for the mortgage associated with the property, if applicable.
According to the Federal Trade Commission, if a debtor is experiencing financial difficulties, it's best to contact the creditor directly and inform it of your situation. If the lien is the result of delinquent HOA dues, some HOA's will accept payment arrangements for the past due amount. Once the dues are current, the lien will be withdrawn. If the lien is from a judgment or other creditor, speaking with the creditor can help you work out an arrangement to get the debt paid and the lien released. This is especially important if your goal is to sell the property in the future.
- The Washington Post:: Foreclosures, Unpaid Dues Strain Condo Boards
- RealtyTrac.com: Foreclosure Laws and Procedures By State
- FloridaCommunityLaw.com: Condo/HOA FAQs
- Federal Trade Commission: Knee Deep in Debt
- Internal Revenue Service. "Understanding a Federal Tax Lien." Accessed Sep. 18, 2020.
- Experian. "Tax Liens Are No Longer a Part of Credit Reports." Accessed Sept. 18, 2020.
- Experian. "What Affects Your Credit Scores?" Accessed Sep. 18, 2020.
- Federal Trade Commission. "Fair Credit Reporting Act 15 U.S.C § 1681," Page 22. Accessed Sep. 18, 2020.
Mack Mitzsheva is a tax lawyer, personal finance expert and the author of the forthcoming ebook, "10 Best Places to Work Online." Mitzsheva is also a social media entrepreneur with five successful sites under her belt. Always innovative, Mitzsheva is currently developing a cutting-edge budgeting app for newlyweds.