HOA Assessment Liens

A homeowners’ association (“HOA”) is a governing body of a subdivision, condominium, or planned community that establishes and enforces rules for how the residents may use their property. Residents become members of an HOA when they purchase property within the HOA’s jurisdiction. They are required to pay dues on a regular basis (typically monthly or quarterly). But when residents fail to pay their dues, many HOA covenants allow for an assessment lien for the unpaid amount to automatically attach to their property. The assessment lien can enable the HOA to foreclose on the property and sell it in payment of the overdue assessments. This post will explain what assessment liens are and what happens when an assessment lien and 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 different types of liens, and they differ from one another in accordance with how the debt was accrued which gave rise to the lien. Tax liens, judgment liens, mortgage liens, and mechanic’s liens are some of the most common types. Assessment liens exist exclusively for the purpose of remedying 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 them the right to seize and sell the debtor’s property if they fail to pay. If the person fails to repay the debt, the owner of the lien may file a foreclosure lawsuit seeking to obtain a judgment from the court enabling the owner to sell the property and collect the proceeds from the sale in payment of 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.

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 with a mortgage lien already on it, but 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. If this happens, the mortgage owner will be paid first for what they are owed out of the sale of the property. The HOA will not be reimbursed for the delinquent assessments unless and until the mortgage owner has received the full value of the mortgage. Some states give assessment liens “super-priority” over mortgage liens, but not Indiana.

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.