HOA Foreclosures: What the Homeowner Needs to Know

A few months ago, a real estate agent called me looking for advice under the following scenario: Their client bought an investment property with cash. When they purchased the property, the Homeowner’s Association (HOA) dues were prorated and paid through the end of the year on the settlement statement by the closing attorney. The client immediately started renting the property out. Over the next couple of years, the client did not pay the HOA dues claiming they never received the bills therefore did not realize there were any due.  Because of the failure to pay the dues, the HOA foreclosed on the property and the client lost their investment property. How does this happen?

Unfortunately, HOA foreclosures occur more than you might think. Pursuant to NCGS § 47F-3-116, a homeowner’s association has the right to place a lien on the property for unpaid dues and assessments.  Further, they have the right to enforce the lien via foreclosure, similar to a foreclosure for an unpaid mortgage.  The HOA can foreclose on a property for a nominal amount of dues or assessments owed. 

There are notice requirements however.  Per statute, before the HOA files a claim of lien for unpaid assessments; it must make reasonable efforts to obtain the owner’s current mailing address.  Once obtained, the HOA must notify the homeowner in writing 15 days prior to filing the lien. The notice must provide the owner with a statement of their account. After 90 or more days from filing the lien, the HOA’s executive board may approve the foreclosure of the claim of lien. Once the foreclosure is filed, notice of foreclosure must be served on the owner of the property.  While due diligence must be made to provide actual notice to the owners of the property, notice can be provided by posting the property with the notice of foreclosure if all other measures to notify the owner fails.  HOA foreclosures for dues and assessments which became due AFTER a mortgage loan was put on the property are rare because the HOA would be selling the property subject to the mortgage.  However if there is not mortgage on a property HOA’s are more likely to foreclose because they do not have to take the property subject to an existing debt.  

Key concept for you if you are the investors or for your client, if you are the agent, if there is an HOA or HOA dues are prorated on the settlement statement when the purchase transaction takes place, make sure to reach out to the HOA management office immediately and provide them with the proper mailing address.  You do not want to lose your investment or your client over what is often nominal monthly dues.

Published by Bess Harris Reynolds on May 13, 2016