Real Estate

Unpaid HOA Assessments and Your Bankruptcy or Foreclosure

By Amy Loftsgordon, Attorney
Gotten behind on paying your monthly dues to the condo or homeowners' association? Here's the worst that could happen; and some ways to avoid the worst and keep your home.

When you purchase a single-family home in a planned community, a condominium, or a townhome, it might be part of a homeowners' association (HOA). With an HOA, property owners must pay dues and assessments to the association.

If you belong to an HOA, it's important to know how the HOA assessment process works, what happens if you miss one or more payments, how an HOA foreclosure works, and what happens if you decide to file for bankruptcy.

Homeowners Obligation to Pay HOA Assessments and Dues

HOAs are typically run by a board of directors, whose (volunteer) job includes determining the budget for the community and setting the amount of the monthly HOA dues. A portion of the monthly dues will cover the costs to currently operate the community, while (if the board is planning ahead as it should) the remaining part will go into reserves to pay for future expenses.

If an unexpected expense comes up that the reserves don’t cover (say, the community center roof needs major repairs or an unexpected and uninsured flood took out all the landscaping), the board can ordinarily impose a "special assessment" on the homeowners in the association.

Together, dues and assessments are sometimes called “assessments.”

How the HOA Collects Assessments If You Don’t Pay

An HOA board holds periodic meetings, often monthly. There, the HOA's treasurer may present the financial report, including an update on the status of members' accounts. Because HOA operations are funded by member dues, the entire community suffers when accounts go delinquent.

When your account is overdue, expect to hear from your HOA sooner rather than later. It's common for an HOA to take quick action once a homeowner misses even one HOA payment. Aggressive collection efforts may start as quickly as 60 to 90 days after a payment is missed.

When you fall behind in paying the HOA assessments, the HOA may try to collect the debt by:

  • calling you and sending reminder letters explaining that you need to get caught up in payments (called "notices of past due account")
  • sending you a final notice
  • filing a lawsuit against you in court to collect the unpaid amounts, or
  • getting a lien on the home and foreclosing.

One reason for an HOA's quick action to collect overdue assessments is that, if a mortgage lender forecloses, limits may be placed on the HOA's ability to collect back dues.

What Happens When HOA Forecloses Over Unpaid Assessments

Foreclosure is the legal process by which a creditor with a lien against your property takes it as payment for the debt you owe. Foreclosure by your mortgage lender is a familiar example. An HOA can get a lien against a homeowner’s property for overdue amounts, and move ahead with foreclosure as allowed by the HOA governing documents and state law.

State law varies when it comes to HOA foreclosures. For example, the foreclosure procedure may be judicial (where the HOA starts a lawsuit in state court to foreclose) or nonjudicial (where the lender has to complete certain out-of-court procedures that state law sets out). The HOA documents may also require the HOA to follow specific procedures to foreclose its lien.

You can, in most states, stop a foreclosure by paying off your account balance and other amounts, such as late fees and HOA legal expenses.

Working Out a Deal With the HOA

Early and honest communication with your HOA is important. The HOA wants the assessments to be paid, plain and simple. The HOA may be willing (or required) to try to work out a deal with you, such as a payment plan, which will allow you to bring your account current.

Colorado, for example, has a law that requires an HOA to make a good-faith effort to coordinate with a delinquent homeowner to set up a payment plan to pay off past-due assessments and other delinquent amounts (unless the owner previously entered into a payment plan).

The HOA may agree to waive the late fees or other penalties as part of a payment plan.

Your Bankruptcy Case and HOA Assessments

Unpaid HOA assessments are one type of debt you may owe when you decide to file for bankruptcy.

Assuming there's a lien for HOA assessments when you file for bankruptcy, here's a general idea of how this claim type is treated in the two main types of bankruptcy used by individuals:

  • Chapter 7: The bankruptcy discharge can eliminate your duty to pay overdue pre-petition HOA fees. However, the HOA is a secured creditor and your bankruptcy won't stop an eventual foreclosure by the HOA. If you want to keep your home, you’ll probably have to pay the dues (those you owed before and after filing bankruptcy); otherwise the HOA can foreclose.
  • Chapter 13: If you want to keep your home and you have equity in the property, the pre-petition HOA dues must be paid as part of the plan. And, if you don't make your post-petition HOA payments, the HOA will probably foreclose. (Bankruptcy law is complicated. For more detailed, specific information about how a bankruptcy will affect your particular situation, please contact a bankruptcy lawyer.)

Where to Learn More About HOA Laws in Your State

State laws, as well as the relevant HOA documents, cover the rights of HOAs and the collection methods they can use.

HOA laws vary from state to state. In some states, there are different laws that cover HOAs in subdivision communities and a separate set of laws for condominium associations. For example, Arizona has one set of laws for HOAs in planned communities and one for condominiums.

For information about the HOA laws in your state, contact an attorney. You can also ask your HOA board or its hired property manager if you want to learn more about what collection methods the association will use in your circumstances.

Questions for Your Attorney

  • If I file bankruptcy but I'm not in arrears on my HOA fees, should I list the HOA as a creditor?
  • I set up a workout plan with my HOA to bring my account current. The HOA still filed a lien against my condo. Can it do that?
  • Do I have a legal claim against my HOA if I brought my assessment account current and it failed to promptly remove the lien against my property?

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