The focus in regards to the foreclosure crisis has been directed almost entirely at mortgage foreclosures. But did you know that your homeowner’s association or condominium association has the right to foreclose on your property as well?
HOA and condo fees have largely been ignored during the recent housing crisis. However, as HOAs and condos have seen more and more delinquencies, they are becoming more likely to enforce their right to foreclose.
HOAs and condo associations have the ability to run up several thousand dollars in late fees, interest, fines and attorney charges for a delinquency that may total only a few hundred dollars. They then can use the threat of foreclosure to collect that amount and/or foreclose if necessary.
The typical action taken by an HOA or condo association with a delinquent homeowner is to record an HOA or condo lien for unpaid dues. This lien provides the HOA or condo with protection that the property cannot be sold or refinanced without first paying off the lien – thereby ensuring that the HOA or condo will not only be paid the delinquent dues that are owed, but also penalties and attorney fees. This lien is subject to any underlying mortgages that have already been recorded against the property.
Then mortgage foreclosures were not as prevalent, this was typically not an issue. Recently however, the subordinate nature of an HOA or condo lien is a major cause for concern: When a mortgage lender forecloses on the property, the HOA or condo lien is often wiped out in the foreclosure, ending the HOA or condo association’s right to collect or enforce the lien.
One way to prevent this from happening is to go ahead and commence a foreclosure for unpaid dues.
One of the biggest concerns is that HOA and condo foreclosures do not face the same restrictions as mortgage foreclosures. In 33 states, an HOA or condo does not need to go before a judge to collect on the liens, so the level of scrutiny for an HOA or condo foreclosure is often considerably lower.
So while mortgage foreclosures have come under attack, HOA and condo foreclosures have come in under the radar, even though they can be just as devastating.
What can you do? Well, ideally, you should try and make your HOA or condo payments on time to avoid the possibility of delinquency. But if you are unable to do so, don’t just ignore the HOA or condo and assume that the problem will go away – this approach could leave you in the same mess as if you ignore your mortgage payments.