Homeowner Association Lien Typically Lost By Foreclosure

Question: A homeowner in our Glendale community has not paid the monthly HOA fees for more than a year, and our HOA now has a lien of $8,000 for delinquent monthly HOA fees. The HOA president recently received a notice of foreclosure from the homeowner’s mortgage lender. If there is a foreclosure by the homeowner’s mortgage lender, will the HOA get paid the $8,000? If not, how does our HOA collect the $8,000?

Answer: In general, a foreclosure of a first mortgage on the home will “wipe out” the $8,000 HOA lien on the home. If the foreclosure is other than a foreclosure of a first mortgage on the home, however, the $8,000 HOA lien should still exist. See A.R.S. § 33-1807(B). Even if there is a foreclosure by the homeowner’s first mortgage lender, if there are any excess proceeds after the foreclosure sale, the $8,000 lien should have a priority on the excess proceeds. Excess proceeds go to junior lienholders when the foreclosure sale price is higher than the amount of the foreclosed loan, including costs of the foreclosure sale. The current real estate market is still strong, and there are frequently excess proceeds after foreclosure sales.

Note: Even if your HOA loses its lien rights on the home, the HOA can sue the homeowner in Justice Court for the $8,000 in delinquent monthly HOA fees.