When a lender forecloses on a property in an HOA or condo association that has defaulted on their association fees, chances are the association isn’t going to get paid for those debts. However, if you are lucky enough to be in a “super lien” state, you may not have to eat the entire amount that was owed by the delinquent owner. Super liens make sure homeowners associations and condominiums recover some of the money that they might otherwise have been lost from unpaid maintenance fees.
A bank foreclosure can be a long, drawn-out process, and during that time the association is experiencing a reduction in cash flow. Super liens help protect the value and desirability of a community to a certain extent. No doubt the association will be taking a loss but that can be reclaimed if the bank forecloses and sells the property with a surplus that the association can petition the court for, which Axela has successfully done for our clients but that is the subject for a different article.
What is a Super Lien?
To understand the concept of super liens, one must understand that liens are like people lining up at a nightclub. The first one in line is the first one in the club, and there is no cutting the line. But there might be a VIP list. And someone on the VIP list can show up at any time and walk right in no matter who got there first. The same is true for liens because you could be the first in line, but another lien can cut ahead of you if they’re on the super lien list.
Also called a priority lien or super-priority lien, super liens give a higher priority over most other liens in states that allow them. Although statutes don’t actually use the phrase “super lien,” the term is what is most frequently used to denote a level of priority given to a lien by state legislation. A super lien is not a completely separate type of lien, but rather a level of priority assigned to an existing lien. It means that certain liens, like association liens, will have a level of priority for debt recovery in the event of a foreclosure on a property, ignoring priority normally given to recording dates. However, not all states have this legislation, which is why those that do are referred to as “super lien states.”
If your state is a “super lien state,” the lender must pay the association for a set amount of past due assessments upon foreclosure. Depending on the state your association’s lien has “some” priority over the lender’s lien for the mortgage, meaning the association gets collection priority up to a certain amount, typically (6) months of unpaid assessments that became due before the lender foreclosed. If the association has properly recorded a lien, they may collect this amount upon a bank foreclosing.
There are, of course, some liens that are exempt from being ‘skipped’ by a super lien, like a governmental lien for example. But those are not the kinds of liens HOAs or condo associations are commonly in competition with when it comes to delinquent assessments.
Is My State a Super Lien State?
About 20 states allow for super liens. These states have differing laws, though, when it comes to how an HOA lien becomes a super lien. In some states, a regular lien can attain super lien status after a fixed number of months of delinquent dues and assessments. For instance, in Colorado, it is six months, while in Nevada, it is nine months. You can learn more about super lien states and their individual laws regarding super liens by looking up your state statutes which are always online.
The following states allow for super liens, or some version of priority liens for community associations:
- District of Columbia
- New Hampshire
- New Jersey
- Rhode Island
- West Virginia
Not in a Super Lien State? Not a Problem
Super liens may sound like the best thing since sliced bread, but they aren’t needed. If you’re not in a super lien state, there are steps you can take to make the liens and foreclosures process less difficult. Bringing in a professional condo of HOA collection agency who will be able to work with your delinquent owner and get that money back into the association’s operating account as quickly as possible (before you escalate to a lien and threaten to take away their home) is better for everyone involved.
Contact Axela-Technologies for a free no-obligation analysis of your delinquencies and an action plan to cure them.