Home Owner’s Associations (HOAs): Can I Skip Paying MY HOA Dues?
Home Owner’s Associations and Condominium Associations can rack up big assessments against an owner’s property. Can you stop paying these if you have trouble affording them?
There are substantial differences between Home Owner’s Associations and Condominium Associations. In general, a Condominium Association has a substantial duty to maintain a variety of insurance coverages for common areas (walls, roofs, physical structures, and other items). A Home Owner’s Association usually covers unattached homes with limited shared walls between living spaces. Many HOAs, as opposed to Condo Associations, also have limited physical amenities such as pools. The HOA may govern items like curb appeal, nuisances, visual or architectural elements. There may be a common recreational facility, maintain perimeter walls, gates or landscaping. Since a Condo Association maintains exterior paint, walls and roofs, it doesn’t need to worry about changes in physical structures violating its charter. There are other items which might be covered. Both can be controlled collegially or like dictatorial fiefdoms.
In recent years, HOAs and Condominium Associations haven’t been as impacted as the 2008 housing crisis when foreclosures and vacant homes populated the landscape. However, actions from the 2008 crisis continue to ripple into current responsibilities, legal battles and responses.
HOAs and Liens
As an example, Nevada passed a “superpriority” law in 1991 and later amended it. This gave HOAs in the state a priority claim on a certain amount of dues as a priority in front of all mortgage liens, even first liens. As a result, unpaid HOA dues could result in foreclosure of a property despite a mortgage loan in a much greater amount been held against the property. The Federal Housing Finance Agency sought to block this as it might impact loans from FHA, FNMA, FHLMC and other agency programs. A recent court action in the Ninth Circuit Court of Appeals in late 2020 reinforced the HOA rights.
For background, a large national lender made a loan to a purchaser in 2008 to buy a home. The home owner defaulted in 2011. In 2013, the HOA foreclosed on unpaid HOA dues and purchased the property at a foreclosure auction for $5300. The property value at the time was around $200,000 coupled with a first lien in a close amount. For the next 7 years, the lender instituted various title actions and legal actions to obtain the property or enforce its lien rights. It ultimately failed with a final ruling in 2020.
The National Impact
Home owners and lenders beware. Twenty states, including the District of Columbia, have assessment priority laws like Nevada! These priority laws differ and aren’t completely the same. However, they have ties in whole or in part to the Uniform Common Interest Ownership Act. This list includes Alabama, Alaska, Colorado, Connecticut, Delaware, Florida, Hawaii, Illinois, Maryland, Massachusetts, Minnesota, Missouri, Nevada, New Hampshire, New Jersey, Oregon, Pennsylvania, Rhode Island, Vermont, Washington, and West Virginia. Each state’s threshold for the amount and method making HOA liens as true priority liens in a foreclosure above a first lien mortgage varies. But it’s clear that if an HOA properly conducts a foreclosure sale of its super lien, a lender may be shut out. The lender must act to redeem its interest by satisfying the HOA assessment. This prevents the lender’s interests from being extinguished. No lender likes to have this happen.
No HOA likes to see its dues go unpaid or in question on a foreclosure sale by a lender. Home owners may not be aware of the power HOAs possess. Although the 20 states can have super priority status, HOAs have the ability to foreclose unpaid HOA dues virtually anywhere. The how and the rules vary, but any home owner located within a condominium association or home owners association should keep those documents in a known place. There are a number of actions either can take, monetarily or non-monetarily. Fines, assessments, paint color or your home, noise, and many other restrictions can impact whether you have an enjoyable residence or an infighting neighborhood!