The ultimate guide to HOA collections – Leveraging liens

When you become a community association manager or board member, one of the essential basics you need to understand is the lien and, more specifically, leveraging liens to collect debts. Why? Inevitably, there will come a time when the board must approve a lien to secure a debt owed by a delinquent owner and proceed, if necessary, with further collection activity. When that time comes, is it best to be prepared? Of course!

Even if you’re a homeowner not serving on the board and voting to approve liens, this article can help you better understand how your community association secures and collects past-due assessments.

So, read on because, as they say, “Knowledge is power.”

What is the Meaning of the Word Lien?

The etymology, or origin of words, is often helpful in understanding their meaning. The word lien is no exception. Its Latin root is ligare, meaning ‘to bind.’ When collecting assessments, recording a lien binds the unit within the association to secure a debt and increases the chances of getting paid. Liens are typical in HOAs and other forms of real estate when debts are not paid as promised.

Although the topic is not complicated, we receive many questions about it and see many collection mistakes, so let’s review.

The Basics of Leveraging Liens

In most cases, liens are recorded with the county or filed with a state agency and are public records. They notify potential creditors that you owe money to another creditor.

In HOAs and real estate, a lien also notifies potential buyers of the subject property that a debt is owed, which must be satisfied before escrow can close. The debt is the seller’s obligation, but in rare cases, a desperate buyer will agree to pay off a lien. It’s inexpensive and essentially guaranteed. This is the inherent value in leveraging liens – the HOA knows they will collect – eventually.

 

Leveraging Liens FAQs

Now that we have the basics covered let’s answer some common questions about liens that our collection reps repeatedly hear.

Q: What if the lien takes too long to trigger because the owner does not intend to sell?

A: The HOA, tax collectors, mortgage note holders, and certain other creditors have the right to sell the property subject to the lien to recover the debt, typically via foreclosure. The restrictions vary by state, so check out your state-specific collection guide for details. That said, rushing to foreclosure is a shameful and heartless way to collect. Instead, Axela advocates for fair collection solutions so no one feels taken advantage of. In most cases, we can help the HOA collect and keep the owner in their home.

Q: If we file a lien, what are the chances of other liens or encumbrances “wiping out” the HOA’s position?

A: The risk is insignificant in most economic climates, but it can happen. Real estate, including units in HOAs, can typically only be liened for mortgages, taxes, and HOA assessments. Rarely will a property have liens placed on it for other debt. The mortgage lien is prioritized in almost all situations, meaning the bank gets paid first in a foreclosure. One exception to that rule is a tax lien. In that case, the government gets paid first. The HOA gets what is left, which may or may not cover the debt owed. This is yet another reason we view foreclosure as a last-ditch effort.

The ‘super lien’ states are another exception to the bank getting paid first. We will discuss super liens later on.

Q: Why do we vote to approve liens in the HOA meetings?

A: The Civil Code typically requires a majority vote of the board of directors to record a lien. Managers cannot be authorized to approve a lien.

Q: Who will record the lien once it is approved?

A: It is common practice for management companies to assist with recording the lien, but this can be risky. If the management company recorded the lien, an attorney or qualified collection expert should review the lien and pre-lien notices to ensure compliance with all state laws and FDCPA requirements before proceeding with further collections. If the management company makes mistakes, you must restart the lien process. Learn more about how Axela makes the lien process easier here.

Q: Can we record a lien if an owner pays assessments but not rule enforcement fines or late fees?

A: No. Some states may allow these items to be included in a lien if assessments are also past due, but not if all dues, other than fines and fees, are paid.

Q: How much advance notice to the debtor is required before a lien can be recorded?

A: Again, this one can vary by state, but 30-60 days advance notice is typically required. Some states have specific language, font type, and size requirements for these notices. Only record a lien once you are sure all pre-lien notice requirements are met.

 

Q: How long after a lien is filed does the HOA have to foreclose on a property?

A: Check your state guide for details. California requires an owner to be delinquent by at least one year or for the assessment debt to reach $1,800 before proceeding with foreclosure. Other states allow foreclosure to proceed much sooner.

Q: Once we initiate foreclosure to collect on a lien, how long does it take?

A: It depends. Is it a non-judicial or judicial foreclosure? Is the owner contesting? In a not-contested, non-judicial foreclosure, the process averages three to four months. An uncontested judicial foreclosure could take six months or more. In a contested case, it could take much longer and cost the association a lot more.

Q: Does an HOA or COA lien expire?

A: Once again, the answer depends on the state in which the community is located. Many states set expiration dates on lien recordings if foreclosure is not initiated. Furthermore, in certain states, a lien recorded by a PUD (planned unit development) HOA may last longer than one filed by a COA. For example, in Florida, a condo lien expires after one year, and an HOA lien expires after five years. Knowing the lien expiration date is crucial regardless of the type of association or state it is within.

Q: My HOA is in a Super-Lien state. What does that mean?

A: In super-lien states, some or all of the assessment debt is prioritized over the mortgage. For example, in Colorado, up to six months of assessments would get paid before the mortgage holder. In Nevada, it is nine months. As we write this, 20 out of 50 states have super-lien provisions that benefit HOAs and COAs (Condo Owner Associations – which in some states are treated differently than their HOA counterparts). However, it is critical to note that super-liens do not cover late fees, attorney or collection costs, violation fines, interest, court fees, and sometimes not even special assessments.

Q: If the owner pays, what happens to the lien?

A: A lien release must be recorded; each state provides a specific time frame for this action. In California, a lien release must be recorded within twenty-one days. Typically, the entity assisting the board with filing the lien is responsible for recording the release. Still, the ultimate responsibility lies with the association.

Q: What happens to the lien if we foreclose on a unit?

A: You are in good shape if you collected enough from the foreclosure sale to pay off the mortgage and any tax liens and recover the entire debt balance. Record a release of the lien and celebrate your success. However, in some cases, the foreclosure sale does not satisfy all debts owed to the association after those ahead of the HOA get their share. Foreclosure is not always the collection solution attorneys often claim it to be.

Q: What happens to the HOA or COA lien if the bank forecloses?

A: The short answer is that the association’s lien is wiped out when the bank forecloses, except in super-lien states. There may be other means to recover this debt, and a qualified collection solution can help you analyze which are best for the particular case.

Q: What happens to the lien if the debtor files for bankruptcy?

A: First, the ledger must be split into two parts – one for all charges before the bankruptcy petition date (pre-petition) and one for all charges after (post-petition). Then, determine which side of that split the lien debt falls on. If pre-petition, the debt is wiped away or settled for a fraction of the amount owed, depending on the bankruptcy outcome. It may remain in place if the lien is on the post-petition ledger. Still, further collection actions, even sending a reminder letter, can only take place once the bankruptcy is decided. Taking action during a pending bankruptcy can get you in hot water.

Q: I am an owner who received a notice of a lien on my home. What are my rights? Can I dispute this?

A: You do have rights. You can challenge the lien and prove to the court that you do not owe the money. If the entity that placed the lien used the incorrect address, this is a serious offense known as slander of title. However, suppose they have the correct address, and you owe the money they claim you owe. In that case, your best recourse is to enter into a payment plan to repay the debt over time and avoid losing your home or impacting your credit.

Avoid a Lien Altogether

Ideally, all owners pay on time, and leveraging liens is never necessary. However, we do not live in a perfect world, so sometimes it is. Still, when you work with Axela Technologies to collect more while spending less, you can rest assured that liens, attorneys, and foreclosures are only used if more civil avenues have failed. At Axela, we work with owners and engage them in developing repayment solutions that are fair to everyone.

Why not let us work with your past-due owners to settle the debt so your delinquency report becomes non-existent? For a free, no-obligation, no-cost collections analysis, please contact us. We are at your service for leveraging liens and more.

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