Condo/HOA Collections 101: Community Association Liens

A word that that gets thrown around a lot in community association collections is “lien.” Almost every condo and HOA director is familiar with this word but is everybody sure what it actually means? Let’s review what a community association lien is with as little “legalese” as possible.

What is a Lien?

To uncover the mysteries of words it is always helpful to learn the origin of the word “lien.” The word comes from Latin ligamen ‘bond’, from ligare ‘to bind.’ So a lien, especially in the case of HOA Collections, is the binding of a property to secure the payment of a debt.

A lien is the binding of a property to secure the payment of a debt.

  • A lien is a notice attached to your property telling the world that a creditor claims you owe it some money.
  • A lien is typically a public record. It is generally filed with a county records office (for real property) or with a state agency.
  • Liens on real estate are a common way for creditors to collect what they are owed.

It’s a pretty easy concept but there are lots of questions about liens in community associations. Let’s dig a little deeper into liens in community association collections:

How Liens Work

Most homeowners feel the pinch of a lien when they are attempting to sell or buy the property. To sell or refinance a property, you must have a clear title. A lien on your house, mobile home, car, or other property makes your title unclear. To clear up the title, you must pay off the lien. Thus, creditors know that putting a lien on the property is a cheap and almost guaranteed way of collecting what they are owed—sooner or later.

Mortgagers, community association, tax collectors, and creditors (in non-homestead states) have the right to have real-property (your Condo or Home) sold to pay off the lien, usually by way of a foreclosure sale. It is rare that a real estate property will have liens placed on it for other debt as they are usually exclusive for mortgage liens, association liens, and tax liens.

Usually, bank liens take up most if not all the money that can be retrieved from the sale and nobody except for a state with a super lien or the tax collector can step in front of the original lender. This is because in most cases your mortgage was placed on the property before the liens and so must be paid off before any liens are paid. If the creditor forecloses on the lien, it has to keep up the payments on the mortgage or lose the property. Foreclosing on an encumbered property is not the best way to recover your money.

Often in place of forcing a foreclosure sale, creditors will wait until the property is sold. Buyers often won’t buy the property unless the title is clear, meaning it has no liens. So, the seller will need to use part of the purchase price to pay off the lien.

Community Association Lien Q&A

An HOA or Condo lien is a lien for the amount that a delinquent owner may owe the community association. Now, keep in mind that the amount owed may change every month if the owner is not sending any payments so a lien for an HOA/condo debt is a number that grows every period.

Why does an HOA or Condo Association need to file a lien?

An HOA or Condo needs to file a lien to protect the interest of the community. If a unit was sold and the owners are jointly and severally liable then perhaps without a lien the association could not recover its debt from the new owner. A lien is a security interest, or encumbrance, over some type of property to secure the payment of a debt or some other obligation. While recording a separate lien is not required, doing so provides extra protection for the association

How do HOA liens work?

Depending on the state you are in HOA liens and Condo liens have a life span. Once they are placed, the next move, if the owner doesn’t pay what is owed, may be to foreclose on that property. It’s a simple process for an attorney and if uncontested, a foreclosure can take as little as six months.

How does an HOA file a lien?

Have your credit solution do this for you. If you are using a collection agency they will cause an attorney to file a lien. Or you can have your community association attorney file a lien. Only attorneys should file liens, NOT board members or managers.

Can an HOA foreclose a lien for unpaid fines?

Not in most states. In some states you cannot lien for late fees and certainly not unpaid fines. It depends on your state and your governing documents.

How much notice is required before a lien is filed?

Depending on the state it could be 30 days or it could be a little more.

How long after a lien is filed does it take an HOA to foreclose on the property?

It depends if you are in a “Judicial” or “Non-Judicial” state and if the owner is going to contest the foreclosure. In the best of cases in a Non-Judicial situation, it could take maybe 3 to 4 months. In a Judicial foreclosure state it could be done in six months. If there is an owner who is contesting the foreclosure it is impossible to tell you how long this foreclosure will take, and how much it will cost the community association in legal fees.

Lien Priority

When a property is foreclosed, the holders of the liens are assigned a priority in terms of the order in which they get paid.

Let’s say a home sells at auction for $200,000. If the primary mortgage has a remaining balance of $180,000, that means only $20,000 remains to be carved among all the remaining lien holders. If the house sells for lower than the amounts owed, lower priority creditors will be left in the cold with no further way to recover the funds they are owed.

Every state has different laws that determine lien priority, but as a general rule, the tax man trumps all, followed by the primary mortgage holder. But there are exceptions to every rule…

Are HOA liens superior to mortgages?

No, for the most part. There are some states that are known as super-lien states where a small amount of past-due assessments are payable to the association before the first lien holder gets paid. For instance in Colorado when a bank forecloses on a unit the association’s lien for up to six month’s assessments is in front of the bank lien. Just assessments and not legal fees, fines, violations, administrative costs, or even special assessments.

What is a super lien?

Some states have a law that entitles certain lien holders to be paid before the first mortgager upon foreclosure or auction. These states are collectively called super-lien states, although the actual terms of what may be paid out differ by state.

At the writing of this article, 21 states in the United States are super-lien States. Click Here to find out which states have super liens in their statutes and which do not.

Who takes first lien position on condos?

The first mortgage holder unless there are tax issues, or you live in a super-lien state. There may be provisions in your state for mechanics liens but they are usually spread out over the owners if they are recorded.

Do HOA liens expire? How long are HOA Liens valid?

Yes, liens expire unless action is taken to move forward on a foreclosure action. Once again, this depends on the state you are in. HOA liens may last longer than Condo liens so know how long the liens last, when they were recorded, and when they expire.

What is the one-year rule with FL condo liens?

A lien on a condo in Florida can only last one year and an HOA five years. Check your state’s statutes to know how long a lien survives in your state.

What happens to HOA liens after foreclosure?

Once a bank forecloses on a unit the HOA lien is removed. Gone and in the dustbin of jurisprudence. If the association forecloses its lien, the bank’s lien will survive and eventually, they will come for their property and take the title away from the association or individual who may have purchased the limited titles at the HOA’s lien auction.

Do HOA liens survive bankruptcy?

All pre-petition amounts owed to the association are in the hands of the bankruptcy court. As a matter of fact the court does not consider the lien but rather the files submitted by the association attorney at the 341 hearing. If the bankruptcy court discharges the bankruptcy and the negotiated settlement is .50 cents on the dollar then that is all the association can expect to receive from the owner for their pre-petition debt to the association. If the bankruptcy was a chapter 7 then most likely the association will receive nothing. Click here for a power point presentation on Bankruptcies and community associations.

If an owner has filed for bankruptcy it is the standard operating procedure to have two ledgers. The first ledger should span the time the owner went delinquent until the time they have petitioned the court for bankruptcy protection. The second ledger spans the time the petitioner filed going forward. The second ledger has nothing to do with the bankruptcy case but you can still NOT pursue this debt and must wait until the matter is discharged.

Homeowner Lien Q&A

A lien can have a serious effect on the property owner. In a personal way, this could put stress on a person knowing that they are coming close to losing a property. If the property has equity then this is even more tragic, particularly if the lien is followed to the conclusion of foreclosure with a sheriff’s auction and eviction.

Even before that end, when a lien is recorded and the owner is reported to the credit bureaus, the owner will have a harder time getting credit to buy a new car, rent a new apartment, they will pay more for insurance, and in some cases, it may affect employment if the person is in a sensitive position regarding security.

Can my HOA put a lien on my house?

Yes, they can and they can also foreclose on that lien and take your title away and evict you.

Can unpaid condo fees be liened?

Yes, they can, and most likely if your community association board of directors is doing their job correctly, a lien will eventually be recorded on your property if you do not pay your assessments.

What does a lien on my condo mean?

A lien on a condo works the same as any other lien in that it announces to the world how much is owed and what property collateralizes that debt. An owner in a condo can also have the lien foreclosed and be removed from their premises.

When can an HOA put a lien on your house?

That depends on the state. In some states, you can be delinquent one month and the “security interest enforcers” can come to take your house as quickly as you can say “cat in the hat.” They might not even need a lien but a “notice of default,” which is nothing more than a notification given to a borrower stating that he or she has not made their payments by the predetermined deadline, or is otherwise in default on their obligations to the community association.

How do I find out if there are HOA liens on a property?

Check your local court dockets which can be accessed easily on the internet and search for the association and unit owner. It will all be there. If your local courthouse does not have internet access to their dockets you can visit them and the clerks there are always helpful.

Does an HOA lien affect your credit score?

Only if somebody reports it to a credit reporting bureau. Lawyers will not report this to a credit bureau so they will never learn and put out that information. Debt collectors will report to credit bureaus after a lien has been recorded. A lien can have two purposes: One, they can be the first step in taking the title of a property from the owner. Two, it can have the effect of invigorating a person to pay their delinquent HOA/Condo and HOA Debts.

Does an HOA lien attach to all of your properties?

A lien can only be for the property that is mentioned in the lien. If you own a house on First Street, it is unlikely that a creditor would put a lien on your house on Second Street, but it can be done.

Does an HOA lien survive a bank foreclosure? Tax foreclosure?

No. Once the tax man has come and completed the Tax DEED sale (not tax lien auction) the bank lein is wiped out and the association lein is wiped out, but your lawyer will still send you an invoice for whatever activity they engaged in before this all went bad. The only thing you can do is monitor the tax deed sale to see if there was a surplus and claim it for your community association. This is a service that is provided by Axela Technologies aside from our collections activity.

Resolving a Lien

Property owners do have lien rights. For an owner, they have the right to challenge the lien in court and prove that they do not owe the money. Or they have the right to challenge the lien because the entity that placed the lien got the wrong address. This is called slander of title and it is a very serious offense.

Usually, when people speak of “lien rights” they mean, ‘does the debtor have the right to place a lien on the property?’ Since liens should be done by an attorney the burden is their responsibility.

Can you challenge a lien in court?

Yes, it can be challenged in court and it is suggested that you do so right away. However, the question of the lien will be brought up at a foreclosure hearing so you can challenge the amount owed at that venue.

How do you dispute an HOA lien?

Have your attorney petition the court for a hearing to dismiss the lien.

How do you clear an HOA lien?

Only a judge or the entity can release a lien. So you’ll need to either pay what you owe, or tell your story to a judge.

Can partial HOA payment be made on a lien?

If you have a lien placed and the collection agency is willing to work out a payment plan then they will be happy to do so. Collection agencies hate foreclosures and courts but they love resolutions of delinquent files. If your lien was filed by the attorney and he has been instructed to move forward with a foreclosure then you may not be able to stop the process with a payment plan. Ideally, they should give you the opportunity to engage in a payment plan, so it doesn’t hurt to ask.

I hope this guide answers all of the questions you may have about liens. Sometimes, it’s good to have these issues written out in plain language so that everybody can understand them.

Avoid a Lien Altogether

The best option for both the homeowner and the community association is never to get to the point where a lien needs to be placed. Axela Technologies in its collection journey will eventually place a lien on a property but NOT BEFORE we engage an owner and work with them to pay what they owe. Sending a property and its owner directly to a “security interest enforcer” aka an attorney is quite harsh and only makes for confrontation in community associations.

See why a collection agency is better than a “security interest enforcer-attorney.”

Why not let a professional collection solution work with your owners, settle the delinquency, and place the money into your operating account? For a free no-obligation and no-cost collections analysis please click here, email us or call. We are here at your service.

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