If you do not pay your HOA payments in California, the organization may place a lien on your property and foreclose on it.
When you purchase a single-family home, townhouse, or condominium that’s part of a planned community with covenants, you’ll most certainly pay fees and assessments, typically together termed “assessments,” to a homeowners’ association (HOA). 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 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 you live in California and your house is part of a HOA and you fall behind on your assessments:
The HOA may get a lien on your house.
Overdue assessments, lawyers’ fees, expenses, late charges, and interest are all things that the organization might charge you for.
The association may decide to foreclose on its lien.
If a HOA debt is foreclosed, the priority of other liens, such as a mortgage, is determined.
If the HOA initiates a foreclosure case, you may have a defense, such as the association charging you too much, imposing exorbitant fees, or failing to follow state rules. Alternatively, you may be able to work out a plan to catch up on the past-due sums and preserve your property. You may be able to pay off the full delinquent, negotiate a lower payback amount, or engage into a repayment plan, for example.
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In General, How Do HOA Liens Work?
Most HOAs have the authority to impose a lien on your house if you fail to pay your assessments in accordance with the Declaration of Covenants, Conditions, and Restrictions (CC&Rs) 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.
A lien cannot be registered in California until 30 days after the HOA has issued you (the homeowner) notice of the late assessments. Among other things, the notification must include:
a basic summary of the collection and lien enforcement processes, including a foreclosure notice, an itemized listing of the charges owing, and several choices for attempting to settle the issue of late assessments. (See California Civil Code 5660.)
Before registering a lien for outstanding assessments, the association must offer you and, if desired, engage in dispute resolution under the “meet and confer” program. (Cal. Civ. Code 5900–5920, 5660(e).) You may also file a request to meet with the board to arrange a payment plan under California law. (See Civil Code Section 5665.)
If you do not find a method to pay the sums owed, the HOA may issue a lien on your property in the county records. (See Civil Code Section 5675.) No later than 10 calendar days after recording, a notification must be sent to all record owners. (See California Civil Code 5675(e).)
Before a lien may be filed, the Board must approve it.
Only the board of directors of the HOA has the right to register a lien for outstanding assessments. The decision must be approved by a majority vote of the board members in an open meeting, and the vote must be recorded in the meeting minutes. (See Civil Code Section 5673.)
Charges That the HOA Could Include in the Lien
In California, unless the CC&Rs allow for a longer period of time, an assessment is deemed overdue 15 days after it is due. (See California Civil Code 5650.)
If an assessment is not paid on time, the association may collect the following:
Assessments. The HOA may include delinquent assessment amounts in the lien.
Reasonable legal expenses and charges. The expenditures incurred in seeking to collect past-due assessments may be included in the association’s lien.
Charge for being late. If the CC&Rs stipulate a late fee in a lesser amount, any late charge imposed cannot exceed the amount mentioned in the CC&Rs.
Interest. The HOA may charge interest on all of the above charges, including delinquent assessments, reasonable attorneys’ fees, and reasonable collection fees and costs, at an annual interest rate not to exceed 12%, unless the CC&Rs specify a lower amount, in which case the lower rate of interest applies, beginning 30 days after the assessment becomes due. (See California Civil Code sections 5650 and 5675(a).)
California HOA Lien Foreclosures
In California, the HOA may foreclose its lien either judicially or nonjudicially 30 days after it was registered. (See California Civil Code sections 5700, 5705, and 5710). In California, the majority of HOA foreclosures are nonjudicial.
HOA Foreclosure Restrictions
In certain cases, California law restricts the HOA’s authority to foreclose. The HOA cannot foreclose unless and until the following conditions are met:
the unpaid amount is $1,800 or more, excluding any expedited assessments, late charges, collection fees and expenses, lawyers’ fees, or interest, or the assessments secured by the lien are more than 12 months delinquent. (See California Civil Code 5720.)
If the HOA is unable to foreclose, it may instead sue you in court for a monetary judgment. (See California Civil Code 5720.)
In addition, before filing for foreclosure, an organization must provide a “meet and confer” program or some alternative dispute resolution with a neutral third party. (Cal. Civ. Codes 5925–5965, 5660(f).)
After-Foreclosure Redemption Right
If the HOA uses a nonjudicial foreclosure procedure, the foreclosure is subject to a 90-day right of redemption after the sale. (See Civil Code 5715.) To redeem the property, you must pay all assessments, interest, lawyers’ fees, and maybe expenses of repair
The redemption time in judicial foreclosures is:
If the profits of the sale are sufficient to settle the obligation, the period is reduced to 90 days; otherwise, the period is extended to one year. 729.030(a),(b) of the California Civil Procedure Code
Your Mortgage and HOA Liens
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 California, HOA Lien Priority
In California, a HOA lien takes precedence over all other liens recorded after the notice of assessment, unless the CC&Rs provide that the HOA lien may be subordinated to other liens and encumbrances. (See Civil Code Section 5680). So, depending on the recording date, a first-mortgage lien may remain on the property after a HOA foreclosure; the purchaser at the foreclosure auction gets the property’s title subject to the first-mortgage holder’s claim.