If you own property in a neighborhood that has an HOA and you don’t follow the community’s Covenants, Conditions, and Restrictions (CC&Rs) or pay the assessments, you might face a lawsuit or even a foreclosure.
People who live in a planned development are usually part of a homeowners’ association (HOA), which is a nonprofit corporation that is responsible for managing and maintaining the community. The HOA has a lot of power over the homes and homeowners in a planned community. The HOA creates and enforces the rules of the community, as well as determines how much members have to pay in assessments and collects those assessments.
What Happens If You Don’t Follow the CC&Rs
If you own property in a neighborhood that has an HOA and you don’t follow the community’s Covenants, Conditions, and Restrictions (CC&Rs), which are the rules of the neighborhood, get ready for fines and maybe a lawsuit or foreclosure.
Mild Responses to CC&R Violations
If you violate the CC&Rs—for example, you paint your mailbox an unapproved color—you’ll probably get a few notices telling you to repaint the mailbox. If you don’t repaint it, the HOA might take one or more of the following steps:
- assess a fine against you for each day you don’t fix the problem (for example, $100 per day)
- go on your property and correct the issue (and charge you for the cost of repainting the mailbox), or
- suspend your privileges to use the common facilities, like the community pool or gym, until you take care of the matter.
If you don’t correct the problem or the HOA doesn’t fix it for you, the HOA might file a lawsuit against you asking the court to order you to repaint the mailbox. The HOA might also ask the court for a money judgment against you for any unpaid fines. Once a court issues a money judgment in favor of the HOA, the HOA can usually take money from your bank account or garnish your wages to collect the amount owed. But that’s not the only route the HOA might take to satisfy your debt. It can also place a lien on your home and, possibly, foreclose it.
Drastic Responses to Unpaid HOA Fines
When a homeowner doesn’t pay an HOA-imposed fine, the organization might have the option to place a lien on the owner’s property, if state law allows it. An unpaid fine does not automatically become a lien (this differs from unpaid assessments). But before the HOA can place a lien on the home, it has to first file and win a lawsuit against you in court. After getting a money judgment from the court, the HOA can record that judgment in the county records as a lien against your property. Then, depending on state law and the HOA’s governing documents, the HOA might foreclose that lien.
Even in states that allow liens for unpaid fines, the law might allow such liens only under specific circumstances, such as when the unpaid fines are more than a certain threshold. For example, in Florida, fines must be at least $1,000 or they can’t become a lien against the property.
Foreclosures for Unpaid Fines
When a creditor places a lien against real property, the lienholder might foreclose the lien. After giving the owner a chance to pay off the debt, it causes the property to be sold (the creditor satisfies the debt from the sale proceeds). The mechanics for foreclosing the lien depend on state law. In some states, the HOA files a lawsuit in court to foreclose (this is known as a judicial foreclosure). In other states, the HOA can choose to use a nonjudicial (out of court) process. In a nonjudicial foreclosure, the HOA follows the process described in the state statutes and the CC&Rs, such as mailing you a notice of foreclosure and publishing the notice in a newspaper.
Just as some states forbid liens for unpaid fines (see above), some also restrict (or prohibit) foreclosures when the HOA lien consists only of unpaid fines and related costs like attorneys’ fees. Here’s an example of a restriction: In North Carolina, the most common foreclosure method is nonjudicial. But under North Carolina law, an HOA can’t use a nonjudicial process to foreclose an HOA lien if the lien consists solely of fines, interest on unpaid fines, or attorneys’ fees that are associated with fines. Instead, the HOA must foreclose judicially by filing a lawsuit. This gives the homeowner one last chance to convince someone (a court) that he doesn’t deserve to lose his home over a dispute with the HOA.
In Texas, an HOA can’t foreclose a lien at all (whether judicially or nonjudicially) that consists solely of fines and attorney’s fees associated with those fines. However, as mentioned earlier, once the HOA gets a money judgment it can potentially take money from the homeowner’s bank account or garnish the homeowner’s wages. And, if the lien also includes other amounts besides fines and related attorneys’ fees, such as unpaid assessments, the HOA can probably foreclose.
What Happens If You Don’t Pay the HOA Assessments
An HOA ordinarily collects regular and special assessments from each household or unit in the community. If you don’t pay the assessments, the HOA will probably charge fees and interest on the unpaid amounts. The HOA might prohibit you from using any common areas until you catch up on the amounts you owe.
The HOA could also sue you for a money judgment. Again, once a court issues a judgment in favor of the HOA, the HOA can usually take money from your bank account or garnish your wages to collect the amount owed. But that’s not the only avenue the HOA might choose in order to satisfy your debt.
In most cases, the HOA has a right to a lien on your home. If the CC&Rs allow it, the lien automatically attaches to the property, usually as of the date the assessments become due or the date the CC&Rs were recorded. The lien is automatically created once you’re late in paying the assessments—the HOA doesn’t have to go to court to get a judgment first. The HOA will then prepare a Notice of Lien (or a similarly titled document) that describes the property and the amount you owe the HOA. Under some states’ laws, the HOA has to record the Notice of Lien at the county recorder’s office to make the lien valid. In other states, the HOA doesn’t have to record the lien.
Usually, the HOA will record the lien even if state law doesn’t require it, just to get it on the public record. You could then have problems if you try to refinance or sell your home, because any potential lender or buyer, when examining your title to the home, will see it. It puts them on notice that, if they lend you money using the house as collateral, or buy the house with this lien on the title, they are lower in priority than the HOA lien. Priority determines the parties’ rights after a foreclosure. So, a potential lender will be concerned that the HOA may foreclose and the lender could lose out on some or all the money it’s owed. (After a foreclosure sale, the liens are paid off in order of their priority. But, sometimes a foreclosure sale doesn’t bring in enough money to pay off all of the liens.) A potential buyer will be concerned that he will lose his rights to the home if the HOA forecloses. Because of these consequences, liens are appropriately known as a “cloud on title.”
The HOA Might Foreclose
Rather than suing you for a money judgment, the HOA might instead foreclose the lien and sell your home to pay off the debt. If the HOA thinks you don’t have any funds in your bank account or from a job to pay a money judgment, it will likely choose a foreclosure because the proceeds from the foreclosure sale go towards paying off the amount you owe.
In some states, the HOA can’t foreclose until you’re a certain number of months or a certain amount of money behind in assessments. For example, a California HOA can’t start a foreclosure unless the assessments are more than 12 months delinquent or the past-due assessments equal $1,800 or more.
Avoiding a Foreclosure
If you’re facing a potential foreclosure by your HOA, you might be able to ask for—or the HOA might require—a preforeclosure meeting to discuss the violation. At the meeting, you might be able to negotiate a resolution to the problem, such as agreeing immediately to begin a payment program to pay off your fines in exchange for the HOA’s agreement to hold off on foreclosure.
Source: Amy Loftsgordon,