If you fail to pay your HOA or COA assessments in Arizona, the association may get a lien on your property and foreclose on it.

When you purchase a single-family home, townhouse, or condominium in a covenanted neighborhood, you will almost certainly be required to pay fees and assessments to a homeowners’ association (HOA) or condominium owners’ organization (COA). If you fall behind on your assessments, the association will most likely attempt to recover the debt by regular means first. For example, the association will most likely contact you and send you letters. If such efforts don’t work, the association will most likely attempt another method of collecting from you. The association may revoke your usage of the common facilities or initiate a lawsuit to obtain a monetary judgment against you. Most HOAs and COAs have the authority to place a lien on your property if you fall behind on your assessments. Not only would an assessment lien obscure the title to the property, making it difficult to sell or refinance, but the property may also be repossessed to compel a transfer to a new owner—even if the property has a mortgage.

If your house is part of a HOA or COA in Arizona and you fall behind on assessments:

The HOA or COA may generally get a lien on your property.
Overdue assessments may usually be charged by the association, including late fees, lawyers’ fees and charges, and collection fees.
The association may decide to foreclose on its lien.
When a HOA or COA debt is foreclosed, what happens to other liens, such as a mortgage?

If the HOA or COA launches a foreclosure action, you may have a defense or be able to negotiate a means to catch up on the late sums and keep your house.

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Arizona HOA and COA Laws

Different sets of state regulations often regulate HOAs in subdivision communities and COAs. In Arizona, one set of state legislation applies to HOAs in planned communities (Ariz. Rev. Stat. 33-1801 and subsequent), while another applies to COAs (Ariz. Rev. Stat. 33-1201 and after). The two sets of legislation are almost identical.

What are HOA and COA Liens? Generally

Most HOAs and COAs have the authority to put a lien on your house if you fall behind on your assessments, based on the Declaration of Covenants, Conditions, and Restrictions (CC&Rs) or Declaration of Condominium and state law. If you go behind on your payments, a lien will normally be placed on your property. In certain circumstances, regardless of whether state law mandates registration, the organization will register its lien with the county registrar to give public notice that the lien exists.

Arizona HOA and COA Liens

In Arizona, the lien is attached to the property when the assessment is due. (Arizona Revised Statutes 33-1807(A), 33-1256(A)). The lien does not have to be recorded in the county records for it to be legal. (Arizona Revised Statutes 33-1807(E), 33-1256(E)). Although an organization is not required by law to register its claim, filing a “Notice of Claim of Lien” is usual.

Charges a HOA or COA May Include in a Lien

The kinds of charges that the HOA or COA may include in the assessments lien are limited by Arizona law. (Arizona Revised Statutes 33-1807(A), 33-1256(A)). In general, the association may charge late fines, reasonable collection fees, and reasonable lawyers’ fees and expenses in addition to past-due charges.

After the entry of a judgment in a civil suit for those fees, charges, late charges, monetary penalties, or interest from a court of competent jurisdiction and the recording of that judgment in the office of the county recorder as otherwise provided by law, the association can obtain a lien for those fees, charges, late charges, other than charges for late payment of assessments, monetary penalties, or interest. (Arizona Revised Statutes 33-1807(A), 33-1256(A)).

Delinquent Assessment Notice

The association must deliver (certified mail, return receipt requested) a written notice to the homeowner at the owner’s address at least 30 days before permitting an attorney or a collection agency to commence collection actions. The notification must include:

Your account is past due. If you do not bring your account current or make authorized arrangements to bring your account current within thirty days of the date of this notice, it will be handed over for further collection procedures. Foreclosure actions against your property might be part of such collection processes.

The notification must be in boldface type or all capital letters, and it must provide the contact information for the person with whom the homeowner may negotiate payment. (Arizona Revised Statutes 33-1807(K), 33-1256(K)).

Foreclosures on HOA and COA Liens in Arizona

In Arizona, the HOA or COA has the same right to foreclose on its debt that a mortgage lender does. (Arizona Revised Statutes 33-1807(A), 33-1256(A)). Because Arizona mortgages must be foreclosed judicially, the HOA or COA must file a case in court to foreclose its claim. (Arizona Revised Statute 33-721). In contrast, Arizona home loans are often backed by a deed of trust rather than a mortgage. As a result, nonjudicial foreclosures by mortgage lenders are common in Arizona.

Furthermore, Arizona has regulations that restrict the authority of the HOA or COA to foreclose in certain instances. The HOA or COA cannot foreclose unless the owner has been delinquent in paying the amounts secured by the lien for one year (excluding reasonable collection fees, reasonable attorneys’ fees, late payment charges, and costs incurred with respect to the assessments), or the delinquent amount is $1,200 or more, as determined on the date the action is filed. (Arizona Revised Statutes 33-1807(A), 33-1256(A)).

Limitation of Liability

To keep the lien effective, the HOA or COA must file an action to enforce it within six years of the date the entire amount of the assessments became due. (Arizona Revised Statutes 33-1807(F), 33-1256(F)) .

Redeeming the Property Following the Sale

Following a judicial foreclosure, Arizona law allows for a redemption term of:

six months from the selling date, whichever comes first

If the court judges that the dwelling has been abandoned and that the land has not been utilized principally for grazing or agricultural purposes 30 days following the selling date. 12-1282 (Ariz. Rev. Stat. Ann.).

HOA and COA Liens, as well as Your Mortgage

A widespread misperception is that the association cannot foreclosure if your mortgage payments are current. However, whether or not you are current on your mortgage does not affect an association’s power to foreclose. Instead, what occurs in a foreclosure is determined by lien priority.

What Exactly Is Lien Priority?

The priority of liens affects who gets paid first after a foreclosure auction and, in many cases, whether a lienholder gets paid at all. Liens normally follow the “first in time, first in right” rule, which states that the lien that is registered first in the land records takes precedence over subsequent recorded liens. A first-lien has a higher priority than other liens and receives first dibs on the earnings of the foreclosure auction. If any funds remain after paying off the first lien, they are distributed to the second lienholder until that lien is paid off, and so on. A low-priority lien may get nothing from a foreclosure auction.

However, state law or the governing papers of an organization might change lien priority.

In Arizona, HOA and COA Lien Priority

Except for the following liens, an association’s lien takes precedence over all other liens:

liens for real estate taxes (and other governmental charges) recorded before the declaration liens, and a documented first mortgage, a seller’s interest in a first contract for sale recorded before the association lien, or a registered deed of trust (Ariz. Rev. Stat. 33-1807(B), 33-1256(B)).

As a result, a foreclosure by a HOA or COA typically does not result in the cancellation of a first mortgage or deed of trust since the association’s claim is usually lower in priority.

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