When it comes to collecting unpaid HOA or condo assessments, states have a lot of laws that vary dramatically. At Axela, we always strive to avoid foreclosure. Banks…not so much. So, it’s important for all Boards Members to understand their state-specific rules regarding lien priority, especially if their state does not have super lien or super priority lien protections. These laws can make a big difference if a bank forecloses on a home in your community.
Let’s break it down in plain English.
- In super lien states, the association is in the driver’s seat.Â
- In super priority lien states, the association has a valuable tool if it uses it smartly.Â
- In no-protection states, the association has fewer options and must be extra proactive both pre- and post-lender foreclosure.Â
After the economy recovered from the 2008 meltdown, lender foreclosures took a dramatic downturn, but “the times they are a-changin’!” We are already seeing an uptick in lender foreclosures, and your HOA or Condo needs to be ready to spar with the banks. Know your rights, understand the rules, and you will reduce your losses.
States With Super Priority Liens
Most states with protections fall into this category. Here, the association’s lien is “super priority,” but only for a limited slice of unpaid assessments (for example, six months or nine months of dues). That slice jumps ahead of the bank’s mortgage in line. The rest of what’s owed is still behind the bank.Â
Why does this matter?
If the association moves quickly and uses the super priority lien correctly, the bank must step in and pay that slice to protect its own interest. This can push lenders to act and help associations recover money without expensive legal battles. Nothing is better than using the bank’s “self-interest” to create a successful collection event.
How It Works
In states that recognize a super priority lien, the association holds a very special advantage. A portion of the delinquent assessments, often six to nine months’ worth, rises above the bank’s mortgage in legal priority. When an association forecloses on that “super slice,” (and just that slice) the law recognizes the association’s claim as senior to the lenders. This creates a powerful dynamic.
If the foreclosure moves forward, the bank faces the risk that its mortgage could be extinguished entirely, leaving the association with control over the property and the bank with nothing. Lenders understand this risk very clearly, which is why they will often step in to cure the arrears owed to the association before the foreclosure is complete. By doing so, they protect their mortgage and preserve their lien position.
For the association, this tool means there is rarely a need to pursue an expensive full foreclosure or a personal judgment against the homeowner. Instead, the very existence of the super priority lien gives the community real leverage. Either the bank pays to safeguard its mortgage, or the association’s foreclosure can eliminate the lender’s interest altogether.
States With Super Liens
In these states, the association’s lien sits at the very top of the ladder, even higher than the bank’s mortgage. This means if the bank forecloses, the association gets paid first.
Super liens give the community a very strong hand to make sure assessments are covered. In some states it can be anything between 4 to 12 months of assessments. Any manager or Board Member who is not familiar with their state super lien laws (if they exist) should take the time and prepare.
States With No Protections
In some states, the association’s lien never jumps ahead of the bank. That means if the bank forecloses, the association is left waiting at the back of the line. Recovering money becomes harder, and boards often feel stuck.
In cases like these, instead of a “write off,” upon a lender foreclosure, Axela will be sure that the lender moved forward in a proper manner and if they did not, we challenge the extinguishment of the association’s lien. We even go further. If the bank process was in good order, we will not rest until we know if there is a surplus remaining for the benefit of the association. We work hard so that you don’t have to waive losses and increase your assessments. With this coming budget season this is a good time to engage a collections entity that knows how to recover community assets.
Axela Can Help You Understand Your HOA Lien Priority
At Axela, our collections experts understand these laws inside and out. Our approach is simple: we put the statutes to work for you, cure most delinquencies before they reach crisis levels, and protect your community’s cash flow, all at no upfront cost to the association. Contact us today to learn more about our suite of collections technology products.
