HOA assessment liens

A homeowners’ association (“HOA”) is the governing body of a subdivision, condominium, or planned community that establishes and enforces rules governing how residents may use their property. Residents become members of an HOA when they purchase property within the HOA’s jurisdiction. They are often required to pay dues regularly (usually semiannually or quarterly, but sometimes annually or monthly). When residents fail to pay their dues, many HOA covenants allow an assessment lien for the unpaid amount to attach to their property automatically. The assessment lien can enable the HOA to foreclose on the property and sell it to pay the overdue assessments. This post explains what assessment liens are and what happens when an assessment lien and a mortgage lien are both placed on the same property.

A lien is a legal right to possess a person’s property until the person repays a debt or satisfies some other obligation they owe to a lender. To be legally enforceable, liens must be filed with and recorded at the recorder’s office in the county where the property is located. There are several types of liens, and they differ depending on how the debt giving rise to the lien arose. Tax liens, judgment liens, mortgage liens, and mechanic’s liens are some of the most common types. Assessment liens exist exclusively to provide a remedy to HOAs for unpaid assessments or other amounts owed to the HOA.

Liens allow property owners to “guarantee” the repayment of a loan or other obligation by giving lienholders the right to seize and sell the debtor’s property if the debtor fails to pay. If the person fails to repay the debt, the lienholder may file a foreclosure lawsuit seeking a judgment that allows the lienholder to sell the property and collect the proceeds from the sale to pay the debt.

In most situations, assessment liens automatically attach to the property of residents who have fallen behind on their HOA assessments. They give the HOA the right to sell the resident’s property to repay the resident’s assessments owed to the HOA. But legal disputes frequently arise among creditors who have separate liens on the same property. Which creditor has the right to sell and collect on the property will depend on what type of lien they hold, and when each creditor filed notice of the lien with the county recorder’s office to ensure their lien would be recognized as enforceable by law. Although the governing documents generally allow for HOA liens to attach automatically, HOAs will generally record a lien on the title of the property to secure their position and put other potential creditors on notice of their interest in the property.

In Indiana, the owner of a mortgage lien has the right to foreclose on a property before the owners of all other liens created and recorded after the mortgage lien. An HOA may still file an assessment lien against a property that already has a mortgage lien. Still, the owner of the mortgage lien will have the legal right to foreclose on the property to recover delinquent mortgage payments before the HOA may do so. The HOA may also foreclose on its lien even if the property owner is not delinquent on the loan secured by the mortgage lien. In either scenario, the mortgage owner is paid the amount they are owed first, using proceeds from the property’s sale. The HOA is not reimbursed for the delinquent assessments until the mortgage owner receives the full value owed to them.

If you are wondering whether you have an assessment lien on a property or are interested in foreclosing on one, contact the experienced Indiana HOA attorneys at McNeely Law to discuss your options.

This McNeelyLaw LLP publication should not be construed as legal advice or legal opinion of any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer on any specific legal questions you may have concerning your situation.