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Can my Homeowner’s Association (HOA) foreclose on my home?

April 24, 2013

Many borrowers that have stopped making their mortgage payments are unsure as to whether or not they should continue making payments to their homeowner’s association (HOA). My clients that are facing foreclosure/short sale often ask what the consequences are for not paying the HOA and are often surprised with my answer. With very few exceptions, I recommend paying your association in full and on time.

When you neglect to pay dues and fines, your HOA may attach a lien to your home. This lien not only prevents you from selling or refinancing your property without paying the delinquent dues, it also gives the HOA the ability to foreclose on the property. An HOA can foreclose on your home regardless of the size of your debt. Not all HOAs use foreclosure as a collection tool. Your HOA bylaws should detail the HOA collection procedure for delinquent dues and fines.
After your HOA forecloses on your home, it recoups its financial losses through foreclosing on the home and selling it at auction. The HOA then applies the auction proceeds to your delinquent balance.

Foreclosing on and selling the home isn’t the only way for an HOA to collect. Your HOA may seize the property and rent it out until your mortgage lender forecloses. Because a mortgage foreclosure is often a lengthy process, this option gives the HOA plenty of time to recover your unpaid dues before the lender takes possession.

Your HOA bylaws determine how much time you have to pay delinquent dues and fines before the HOA takes action against you. This time period will vary depending on the association’s regulations and your state laws. When the HOA does decide to foreclose, however, it often does so quickly. Unlike banks, which can take years to foreclose on a home, an HOA can often complete the process in as little as four to six months.

If you fall behind on your mortgage and the bank initiates a foreclosure action against you, that doesn’t mean that, your obligation to your HOA debt will disappear along with your home. If the bank forecloses on the property before the HOA, your debt remains valid. Your former HOA may attempt to collect this debt in a variety of ways, such as sending your account to a collection agency or filing a lawsuit against you. If the HO wins its lawsuit, it often wins the right to garnish your wages, levy your bank accounts and seize your personal property as payment for your overdue HOA dues.

Many lenders will no longer allow delinquent HOA balances included in the proceeds from a short sale. Nor will they allow relocation incentives paid to the seller to be used to satisfy past due HOA dues. Leaving unpaid HOA dues the responsibility of the seller or charged to the buyer.

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