Sometimes, when a homeowner becomes delinquent on assessment payments, an HOA board will consider placing a lien on that homeowner’s property to receive payment for missing assessment funds. However, considering this action is daunting because the topic of liens is clouded in confusion over what liens are, how they work, and how they enable a board to acquire HOA funds. This week, we’re going to untangle the confusion surrounding HOA liens.
What is a lien?
The most important thing an HOA board member should understand about HOA liens is that the lien always exists on the homeowner’s property; liens take hold on all association properties when the CC&Rs are filed with the county. This way, when a homeowner buys a property in an HOA, he or she is held accountable for paying assessment funds through the pre-existing lien.
When a board files a lien, it is actually making a public notice that explains a certain property owes a particular amount of money to the HOA board. An Affidavit of Non-Receipt is used to notify a homeowner that money is owed to the association, and an Affidavit of Satisfaction confirms that the missing amounts have been paid.
What happens when a lien is made public?
When a lien is noticed, the homeowner is called upon to pay delinquent amounts upon risk of losing his or her home. Providing a notice of a lien is a legal affair, so it should not be handled by the HOA board. As a document that affects a title, it must be drafted by an attorney; the HOA board’s legal counsel should help the board decide whether a Notice of Lien can and should be placed on the home. As the attorney should be part of an HOA’s collection process, he or she should be aware of each lot’s position in this process and should notify the homeowner of the lien.
How does the statute of limitations apply to liens?
Based on the particular state where your HOA is located, your association will have a certain number of years (e.g., three or four) to collect upon the lien. Beyond that period, giving notice of a lien will not be collectible. Additionally, an HOA board should be aware that the longer it allows a homeowner to amass debt, the harder it will be to recover the missing funds. Waiting longer than a year to involve an attorney in the collections process will seriously hamper the board’s ability to collect.
How can the board avoid placing liens on properties?
Establishing a past-due billing policy is an effective method to avoid noticing liens while still ensuring that the board acquires missing assessments. This process allows the board to recover assessments before accounts are escalated to an attorney. Your board can also offer a payment plan option to homeowners even if state statute does not require it.
Giving homeowners multiple opportunities to pay missing fees is in the board’s best interest. In fact, depending on the language of your association’s payment plan document, the time the homeowner spends on the payment plan may not count toward the time limit imposed by the statute of limitations—ask your HOA attorney for more information.
How does state law affect HOA liens?
The rules for filing liens differ from state to state: the persons who may sign the document, the number of years available to collect on the lien after filing, and the restrictions imposed by the statute of limitations can all vary depending on where the HOA is located. Because the law can be very complex, it is wise for the board to consult with the HOA attorney for clarification of the rules and guidance through this particular process.
How can the board protect itself from homeowners contesting liens?
Homeowners may contest a Notice of Lien by either arguing that the HOA does not have the power to place a lien on a property or that the placement of the lien was unlawful. To avoid these issues, the board should have its attorney handle the lien process; this way, a third party will share the responsibility if a homeowner decides to sue the HOA. The board should also work hard to have an accurate accounting process and ensure that homeowners are not charged for items that the governing documents do not allow to be fined. Again, the HOA’s legal counsel is the best resource for addressing these issues.
Filing a lien on a property is a serious action for an HOA board to undertake. We hope that the above information has given you helpful insight to this process and that it prepares you to discuss this issue with your HOA attorney in the event your board must file a lien.