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By: Eric A. Cruz, Esq.
Bivins & Hemenway, PA
Valrico, Florida

Millions of homeowners in the United States own property in communities governed by one or more mandatory homeowners’ associations. While most homeowners understand the importance and the role played by the homeowners’ association governing their neighborhood, many don’t understand the seriousness of the obligation to timely pay all assessments due to the association. These are some of the most common misconceptions:

Myth No. 1: The association can’t foreclose on my property

A homeowner’s failure to make timely payments of his or her association assessments is likely to result in the association placing a lien on the homeowner’s property. The lien may very well be automatic at the time the payment becomes delinquent. The association may have a statutory right to place such a lien. As an example, Section 720.3085, Florida Statutes, establishes a homeowners’ association’s ability to lien a homeowner’s property when liens are authorized by the association’s governing documents. For that reason, in Florida, almost all, if not all homeowner’s associations include such an authorization in their governing documents.

Local laws and statutes, such as Florida’s homeowners’ association statute, may also provide that the association may bring an action to foreclose a lien for assessments in the same manner in which a mortgage of real property is foreclosed, and moreover, that the association may also bring an action to recover a money judgment for the unpaid assessments. Some statutes may also provide for the recovery of attorney’s fees incurred by the association in an action to foreclose a lien or an action to recover a money judgment for unpaid assessments. Because of this, what might be a lien on a small assessment fee debt can often multiply as costs and attorneys’ fees pile up, making it more difficult for the homeowner to either complete payment or work out a solution with the association.

 Myth No. 2: If I stop paying my mortgage payments, I might as well stop paying my association

Many homeowners facing financial distress and who are having trouble maintaining their mortgage payments current are forced to seek alternatives to foreclosure proceedings with their mortgage lender, including short sales, loan modifications, and deeds in lieu of foreclosure. Often, the same homeowner may stop making payments to their association as a way to free up additional funds.

However, failure to pay assessments to an association can result on a lien being placed on the property of the distressed homeowner, as discussed above. An association lien can become a major obstacle to securing one of the loan work out solutions mentioned above. A homeowner would not be able to complete a short sale without removal of the association lien. Also, lenders will likely not agree to a deed in lieu of foreclosure or loan modification until the association lien is resolved and removed. The association will likely demand payment in full before they will release their lien.

Myth No. 3: If I purchase a property in a bank foreclosure auction sale, it will be free of all association liens and prior assessments

If procedures are properly followed by the foreclosing lender, any association liens affecting the target property may be extinguished. However, it is important to understand what happens to the debt that is tied to the association lien if such lien is extinguished through the foreclosure of a superior lien. As an example, Section 720.3085, Florida Statutes, provides that a homeowner is jointly and severally liable with the previous owner of the property for all unpaid assessments that came due up to the time of transfer of title to the property. This means that although the association may no longer have a lien on the property, the new homeowner would become liable for any assessments that remained unpaid by the previous owner, and such assessments would become due at the time the new owner takes title to the property. The association may then demand payment of these assessments from the new homeowner and place a lien on the property should the new homeowner fail to make a timely payment.

Myth No. 4: If I purchase a property in a homeowners’ association foreclosure sale, all liens encumbering the property, including mortgages, are extinguished and thus I will own the property free and clear

While foreclosure proceedings of any kind typically extinguish any liens junior to the lien being enforced, it is likely that any mortgage liens encumbering a property being sold in a homeowners’ association sale are superior to the association’s lien and thus could survive the foreclosure sale. Although the new homeowner would not be personally liable for the debt secured by the mortgage, the lender would still have the ability to enforce its lien on the property if mortgage payments are not being made, which is very likely in this situation. The lender will likely move forward with foreclosure proceedings, which the new homeowner may only be able to stop by refinancing or selling the property in order to satisfy the underlying mortgage. Although the new homeowner will not owe any money to the previous owner’s lender, they may lose the interest acquired in the property if they are unable or unwilling to satisfy the mortgage.

This is why, typically, properties are sold at extremely low prices at association foreclosure sales. Once bidding reaches the amount owed to the association, the association typically stops bidding, allowing a third party to purchase the property. Often, the winning bidder is unaware of additional liens encumbering the property.

The above is only a small sample of the issues and concerns presented by the presence of a homeowners’ association. A review of the association’s governing documents, as well as the applicable local laws and statutes, is recommended and advised to all homeowners so that they may properly understand their responsibilities and the consequences for their failure to maintain them.

Eric A. Cruz is an associate attorney with Bivins & Hemenway, P.A., located in Valrico, Florida. Eric's practice focuses on business law, real estate transactions, and estate planning.

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