A Guide To HOA Foreclosures (And Avoiding Them)

In planned communities, homeowners often form an organization to manage the common areas and shared property. Homeowners’ assessments and fees fund these organizations. Not paying your HOA dues may get you slapped with a lien, which could lead to a foreclosure if left unpaid for long enough.

The primary HOA cost is a recurring payment that covers typical area upkeep, including landscaping, repairs, and security. The HOA may also impose one-time special levies on the homeowners in addition to the monthly maintenance charge. For example, this may include fixing up a dilapidated community center or paving over an underused section of the road.

How can an HOA foreclose on your home? HOA foreclosures must comply with due process laws in several states. These may stipulate a minimum debt level at which point the HOA may foreclose on a homeowner or during which a homeowner may bring their account current (if the time period is minimal). 

What Is An HOA Property Lien? 

Reminiscent of mortgage lenders, assessment liens are the HOA’s final recourse when trying to recover past-due fees. The property might then be subjected to an HOA foreclosure auction.

Creating assessment liens is not a right that springs spontaneously from the legislation in Texas. The HOA’s Declaration of Covenants, Conditions, and Restrictions (CC&Rs) should clarify this. The Declaration must detail the steps required to create and improve an assessment lien. Liens may be placed on things like overdue assessments, interest, attorney fees or legal fees, and more, but the Declaration must make it clear.

Homeowners with an HOA lien on their property may find it difficult to sell or refinance until the obligation is paid in full. However, the lien will remain a matter of public record if the owner does not sell or refinance the property.

Can an HOA foreclose on your home? A lien will remain on a property for three years. They will no longer be valid after that date. However, the HOA can file a second lien on the home. If the owner refuses to pay the HOA’s obligation, the HOA may foreclose on the lien.

What Triggers An HOA Foreclosure?

The HOA board must adhere to several legal criteria whenever it chooses to proceed with this type of foreclosure, including: 

  1. Give the owner advance written notice so that they may make arrangements to pay off their debt;
  2. Ensure the homeowner is at least 90 days delinquent on their dues or assessments; 
  3. Put the HOA lawyer in charge of handling the foreclosure as the HOA foreclosure attorney; and
  4. Take action on the lien and start foreclosure proceedings by a vote. 

In a judicial foreclosure, once the HOA has fulfilled these conditions, a Notice of Foreclosure Hearing must be filed with the Clerk of Court in the county where the property is situated. This notification should be sent to the property owner through Federal Express, Certified Mail, or the Sheriff. It is possible to “post” property with the Sheriff if reasonable efforts to find the owner have failed.

How to stop an HOA foreclosure? If the house is the owner’s primary residence, the legislation allows for 60 days grace period during which the owner may make a last effort to settle the debt. As long as they are acceptable, payment plans should be accepted by the HOA. As long as the owner agrees to the terms of the payment plan, the HOA may delay or even drop the foreclosure action, with the understanding that it would refile the lien if the owner defaults.

Can an HOA foreclose during Covid?

The national association of HOAs called for a moratorium on foreclosures as the COVID-19 epidemic unfolded. However, HOAs were given considerable leeway in the matter.

How To Respond To An HOA Foreclosure

Those facing HOA foreclosures should contact a law firm without delay. Inaction on the part of a homeowner throughout the HOA foreclosure process might result in lost opportunities to avoid losing their home.

Homeowners only have one year from when an HOA forecloses on their home to file a lawsuit challenging the foreclosure as illegal. A “good faith purchaser,” or a buyer who bought the property in foreclosure without knowing the HOA had engaged in improper foreclosure practices, will also be allowed to retain the property after the foreclosure sale.

If a court rules that an HOA had wrongful foreclosure, a good faith purchaser may still be able to keep the property. If you see a foreclosure or real estate lawyer, they will be able to examine the details of your foreclosure case and advise you accordingly.

What To Do After An HOA Foreclosure

After foreclosure, the homeowner can redeem the property in certain areas. In other words, you may reclaim your property by satisfying your HOA’s financial obligations, including any penalties, fines, and accrued interest. A bill might come your way if the HOA fixed up your house after the foreclosure. Depending on state laws, the redemption period might be as short as a few months.

An HOA foreclosure has the potential to ruin your credit severely. If this happens, you may have to settle for a higher interest rate or put down a bigger down payment on a house loan in the future.

If your credit score was already low, the hit may not be as severe as it would be for a homeowner with a high score. If the HOA reports your missed payment to the credit agencies, your credit may take a hit even if they don’t take any further legal action, such as foreclosure. To avoid an HOA wrongful disclosure, there must be a 30 day warning and the option to enroll in a payment plan before a homeowner’s association disclosure of a property owner’s history of late payments.

Will The HOA Actually Take Your Home?

A homeowner behind on their HOA assessments may see the association as heartless or uncaring. This is a highly sensitive matter for the aggrieved homeowner because even a few thousand dollars in delinquent HOA assessments may result in the foreclosure of their property.

HOAs are non-profit groups that operate on a shoestring. The homeowners’ monthly dues are its principal revenue source. Without a sizable supplemental revenue stream, the assessments paid by each homeowner are important to maintaining life-sustaining amenities like water and sewage systems, garbage collection, landscaping, and security. 

If the HOA’s budget is strained due to a lack of this revenue, it may have to resort to measures such as lowering property values, imposing special charges, cutting down on services, or even raising dues.

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