Your mortgage lender isn't the only one who can foreclose on your home. If you belong to a homeowners association, for instance, you probably pay regular HOA dues for the upkeep of association common areas. If you fall behind on your dues, your association can foreclose on your house to collect what you owe.
If you miss your regular fee payment, the association automatically attaches a lien to your property. If you pay up, the lien goes away. If not, the HOA can add late charges, attorneys fees and interest to your bill. Once enough time elapses, the association can foreclose. In some states, it has to go to court to do this. Other states allow it to foreclose without the trouble of a court hearing -- in a so-called non-judicial foreclosure -- though you can file in court to stop the foreclosure.
It's often harder to fight a HOA foreclosure than a mortgage-lender lawsuit. All the association has to prove is that you owe money, that it notified you about the debt and that you still haven't paid. Standard defenses are that the bill for fees is inaccurate, or that the HOA has imposed charges blocked by the governing covenants. Unreasonable charges may not fly in court: if the initial late payment was, say, $500 and it's ballooned to $15,000 due to penalties and fees, a judge might toss out the foreclosure.
After a foreclosure, liens on your house get paid off in order of seniority. Even if your HOA filed the lawsuit, your mortgage lien was there first. The foreclosure proceeds go to your mortgage lender until that debt is wiped out. That doesn't wipe out your responsibility to pay the HOA, even though you no longer own the house. California law, for example, prevents most lenders from suing you for leftover post-foreclosure mortgage debt. This law doesn't hold your HOA back from filing suit.
If you want to avoid foreclosure, see if your association is willing to negotiate a payment plan of some sort. It may cooperate if the market is down and foreclosures high, making it hard to resell the house profitably. If you file bankruptcy and give up the property, you may be able to unload your debt along with the house. However, the homeowners association can often bill you for any new fees between emerging from bankruptcy and the final sale of your house.
- Nolo: HOA Liens & Foreclosures: An Overview
- Carmen G. Soto: Home Owner’s Associations (HOA), Foreclosure and Bankruptcy Experience
- Nolo: Defenses to a HOA Foreclosure
- California Association of Realtors: Foreclosure and Short Sale Issues: HOA Liens & Assessments FAQ
- Nolo: Can I Discharge HOA Dues in Chapter 7 Bankruptcy?
A Durham, NC resident, Fraser has written about law, starting a business, balancing your budget and fighting evictions, among other legal and financial topics.