How to Collect Late HOA Fees Through Foreclosure

If a member of the HOA community hasn’t paid their regular payments, the board has several easy steps when it comes to how to collect late fees. Official notices or payment plans often solve the problem. But until the board takes serious action, sometimes the fees won’t be paid. One of those actions can be filing a lien against the property.

It’s legally allowed for the HOA to be using foreclosure. Certainly, after a liens been filed against a homeowner’s property. It’s just like a mortgage foreclosure. The association can force the sale of the property to get payment for the debt. The ability to foreclose is granted under the law and is often spelled out in the HOA’s CC&Rs too. Even if there is still a mortgage on the property, the HOA can pursue and receive foreclosure.

Sometimes it’s impossible to collect all late HOA fees and debt through foreclosure. There could be some conditions that arise when pursuing this option. For example, a state might require the payment owed to be more than a certain amount, such as $2,000. Or that the debt has existed for a specific amount of time, such as two years. It’s essential to know your state laws on this point, so you don’t waste time and money pursuing an option that isn’t yet available to you.  

Usually, even the HOAs who haven’t initially met the required threshold for foreclosure do get there and can start the process. Sometimes there are positive effects of starting the process too. For example, sometimes prior to selling the property, HOAs will report their foreclosure suits being settled. Then, after the owners received the notice that the board’s granted the right to foreclose, they work with the board to reach an agreement on how the debt can be resolved. 

Types of Foreclosure

There are two types of foreclosure options for HOAs. They are judicial and non-judicial. A judicial foreclosure involves a court process and a nonjudicial foreclosure starts the process with any court action. There are pros and cons for each type of foreclosure that the board can use.

In a judicial foreclosure, the HOA can go to the court to set the next steps. After recording a property lien. Then, the HOA will be filing a lawsuit. This is to request that a judge enters an order to direct the property to be sold to satisfy that lien. The homeowners can oppose the foreclosure in court. And the judge may rule on their side. This process is more protracted and more expensive. HOAs must hire lawyers to work with them through the process. Lawyers are needed for helping the board be prepared. They’re also needed for developing answers to arguments homeowners make. And still, the HOA could not get paid. This is because the judge winds up ruling against the association.

Some states don’t allow nonjudicial foreclosure, but it’s usually a better option for HOAs. We will explain it here. A nonjudicial foreclosure, or trustee sale, takes the judge and the court out of the process. The details and exact processes vary by state. The idea is that for the sale of the property, a representative will be appointed without a conducted court order. Instead of a legal proceeding where a judge decides to order foreclosure. In most cases, this representative is a real estate attorney. Often, HOAs pursue nonjudicial foreclosure because it’s quicker and cheaper if allowed,. There’s no court involved initially. However, the homeowner can pursue legal options such as a stop to the sale and try to overrule the foreclosure in court.

The Process to Collect Late HOA Fees Through Foreclosure

The first step is for the HOA executive board to take a vote on whether to initiate foreclosure. A vote will also clarify if they plan to use judicial or nonjudicial.  

Next, the association must notify the homeowners that they voted to pursue foreclosure. States have different requirements of when precisely these notifications need to be given. For example, some states require that notice be given to the homeowner within 30 days after a lien has been recorded. Other states have other different procedural requirements. It’s essential to make sure you are following the state guidelines on the procedure, as making a mistake on them is something a homeowner can bring up to a judge in court. A property owner saying they are not adequately notified is something a judge might consider. 

If there’s a sale of the property ordered by the judge, the association’s debt will be paid from the sale of the property first. Then other, more “senior” debts are paid. Examples of these debts include mortgage or taxes. This is because the property’s sold individually for the satisfaction of the association’s lien. If the owner sold the property on their own, without a lien, the “senior” debts can be paid before the HOA debt. There might not even be enough left over to pay the money owed to the HOA. So sale through a foreclosure is much better for the HOA.  

Once the debt’s paid, a filed lien release will be required by the HOA. Certainly, if it’s by the sale of the property or settlement agreement.