Many homeowners know that homeowners associations can place a lien on your property. But, did you also know that some associations, depending on the state, can place an HOA super lien instead?
What Is an HOA Super Lien?
Simply put, an HOA super lien is a type of lien that takes a higher priority than all other lien types. A lien automatically attaches to a property when the owner has failed to pay the monthly fees or assessments to their homeowners association. A super lien takes a much higher priority and operates similarly to a property tax lien.
To better comprehend the nature of super liens and how they work, though, you must first understand lien priority.
Breaking Down the Priority of Liens
When you buy a house, you take out the first mortgage. This mortgage, recorded first, serves as the first lien on your property. Sometimes, you may need to take out a second mortgage on your home. This mortgage is then recorded second, turning into the second lien. Whether or not a lien is first or second depends on the date the lien was recorded. As such, priority follows the recording date.
The priority of a lien decides which lien holders receive payment first following a foreclosure sale. Most of the time, the first mortgage holder gets all of the sale’s proceeds, leaving little to nothing for second or third lien holders, also known as junior lien holders.
In the context of a homeowners association, liens can be used as a form of covenant enforcement. Homeowners who default on their monthly dues or special assessments will see an HOA lien automatically placed on their property. The lien’s recording date typically follows the date the association’s CC&Rs were recorded or the fees’ due date. The HOA can then later foreclose on this lien.
Unfortunately, HOA liens usually take a lower priority than first and second mortgages, even if the mortgage was recorded after the HOA lien. Many associations have such stipulations written in their governing documents. Some states also deem mortgage liens as superior to HOA liens.
A super lien, though, overrides all of that. In states that allow them, super-priority liens take a higher ranking over all other liens. That includes first and second mortgage holders. Super liens apply to the part of an HOA lien that holds superiority over other lien holders. In such a case, the association’s interest takes priority.
The Case for HOA Super Liens
Some say an HOA super lien is unnecessary and harsh for homeowners. But, in reality, they help protect the value and desirability of a community. When homeowners fail to pay dues, the community can suffer maintenance issues and start to decline.
Super liens make sure homeowners associations receive the right amount of dues to maintain their neighborhood. Any late notice or insufficient funds are important and need to be paid. This helps keep the community’s worth high and acceptable for all other homeowners in the association.
When Does an HOA Lien Become an HOA Super Lien?
Whether or not your association can attach super liens depends on your location. In addition to the District of Columbia, there are currently a total of 21 states in the country that can give HOA liens the status of a super lien. HOA super lien states are as follows:
- New Hampshire
- New Jersey
- Rhode Island
- West Virginia
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 here.
Foreclosing on HOA Super Liens
When a property has a super lien, an association can initiate HOA lien foreclosure. Once the lien enters into foreclosure brought on by the HOA, it could remove the first mortgage.
Because of this, most lenders will usually settle the super lien to put a stop to the foreclosure and, thus, retain their place as the first lien holder.
Lenders will not just let the super lien amount go, though. Typically, they will add the amount to the homeowner’s (i.e. borrower) total mortgage debt. They will ask the borrower to reimburse them for the amount paid. If the borrower refuses or fails to do so, the lender may then initiate foreclosure.
What If the First Mortgage Holder Forecloses?
In some cases, the lender or first mortgage holder will foreclose on a property if the owner or borrower stops delivering mortgage payments. When that happens, what will become of the homeowners association lien?
For Regular HOA Liens
As mentioned above, first mortgage liens generally take priority over HOA liens. Therefore, when a mortgage holder forecloses on the property with an HOA lien attached, the HOA will not get anything.
It is important to check your own CC&Rs and state laws regulating the priority and nature of liens in your homeowners association. This way, you have a clear understanding of how your liens work and can set the proper expectations. When in doubt, it is always a good idea to consult with a foreclosure attorney with experience handling HOA cases.
For HOA Super Liens
As you may know by now, HOA super liens have more pull. Therefore, if the first mortgage holder forecloses in a state that allows HOA super liens, the association gets paid first. The amount the HOA receives depends on state laws, but it is usually a specific number of months’ worth of delinquent dues or assessments.
Moral of the Story
Homeowners have an obligation to pay their dues on time and in full. Liens and foreclosures are only two of the possible consequences you might face when you default on your payments. To avoid suffering these repercussions, it is best to stay up-to-date on all your dues payments and leave no room for error.
Collecting and paying dues and assessments can become a headache when done manually. Allow for easy dues collection and payment online with the help of Condo Manager’s software. Call us today at (800) 626-1267 or reach out to us online for a free demo.
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