In addition to posing the risk of a foreclosure, an HOA lien can prevent a homeowner from selling the property because they do not have clear title while the lien exists. The CC&Rs (Covenants, Conditions, and Restrictions) that govern the community usually give the HOA a right to foreclose on a lien, even if the property is also subject to a mortgage. It can choose either judicial foreclosure or non-judicial foreclosure, as long as the CC&Rs and state law permit. The main difference between these processes is that judicial foreclosure involves filing a lawsuit and going to court, while non-judicial foreclosure does not.
MORTGAGES IN HOA FORECLOSURES
An HOA lien typically will take priority over any other liens on the property except the first mortgage, as long as it was recorded before the HOA lien arose. This first mortgage will remain with the property, but the HOA will not be required to pay off the mortgage if it takes title to the home. Instead, the homeowner who took out the mortgage still will need to pay off the debt to the lender. If the HOA forecloses on the home, the homeowner may stop making payments to the mortgage holder. While the HOA could pay the mortgage holder, it probably will allow the mortgage holder to foreclose and sell the property to a new owner at a foreclosure sale. This benefits the HOA because the new owner will be responsible for paying fees and assessments. On the other hand, a second or subsequent mortgage, or any other lien junior to the HOA’s lien, will be removed from the property and will not further encumber the title. However, any promissory notes that the homeowner signed will leave them personally liable to pay off these debts. They might face lawsuits from the holders of these liens.
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