HOA liens are key to getting the dues paid after foreclosure.
A rampant reality in America's housing market since 2007, foreclosure caused insolvency -- the inability to pay utilities or maintenance -- for many homeowner's associations, or HOAs. The repercussions are far-reaching when condominium and planned unit development HOAs can't pay the bills. The remaining homeowners often pay higher HOA fees or do without certain services. After foreclosure, who pays for HOA arrears depends on various factors.
The Basics
Delinquent HOA dues are the responsibility of the homeowner until the individual is no longer the owner of record. HOA assessments are a personal liability, unsecured by the property, unlike a mortgage. When left unpaid -- typically for 90 days or more -- the HOA may place a lien against the property, binding the arrearage, plus penalties and attorney fees, to the home. In such cases, the owner must pay the lien before the property title can transfer to the bank or a buyer after the foreclosure auction.
Lien Presence
HOA liens take a subordinate position to mortgages already recorded on title. The mortgage, therefore, takes priority in repayment. When a bank takes possession of the property at foreclosure, rather than selling it to an individual buyer, the bank must pay the HOA lien to take title of the property. If a buyer purchases the home at a foreclosure auction, the buyer may have to pay the HOA lien, or the bank can pay it to sell the home.
Personal Liability
When no HOA lien exists, the homeowner is personally liable for the HOA in arrears and any penalties. The homeowner may remain liable until repaid, whether the home goes into foreclosure or not, as long as no lien is filed. HOAs can pursue borrowers after foreclosure if they have sufficient personal information to track them down, such as a forwarding address, Social Security number or driver's license number. The HOA may sue the prior homeowner in small claims or civil court, depending on the monetary amount owed. If the HOA wins and the delinquency becomes a judgment, the individual has a legal obligation to repay the debt.
Considerations
Buyers who purchase a foreclosure at auction are responsible for all HOA dues assessed as of the day they take title. The bank, if taking possession, is likewise responsible for HOA dues after becoming the owner of record. The new owner, whether bank or individual, does not have to pay any arrearage unless it is a lien.
According to the National Public Radio, banks sometimes "drag their feet" in paying monthly HOA dues after they take possession of a foreclosure. Banks sometimes want to re-sell the home before paying. In such cases, the HOA may take legal action, either through HOA foreclosure or filing a lien. In about half the states, laws require banks to pay up to six months worth of unpaid dues.
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