All Forum Posts by: John Coulter

So in my particular case, it doesn't matter if the HOA discloses it or not, the HOA falls. I predict there'll be enough elbow room in the transaction that the HOA could've been satisfied either way as the lender lien amount is less than half the estimated prop value.

Thanks to everyone who responded to my post, appreciate all the insight from the folks on BP! I received a response from an HOA attorney at another property I rent who was nice enough to share this info for both HOA Lien and Mortgage Lien scenarios in AZ:

Pursuant to the Declaration and ARS 33-1807, the association has an automatic lien for the delinquent assessments and reasonable costs of collection and attorney fees. The Association may foreclose on its lien if the assessments are $1,200 or 1 year in arrears.

The process for the Association to foreclose on its lien is generally as follows. We file a foreclosure lawsuit to obtain a foreclosure judgment. Then, once we have that judgment, we schedule a sheriff’s sale at the courthouse. The property is then auctioned off to the highest bidder at the sheriff’s sale. Our office attends the sale and starts the bidding at the amount owed to the association to ensure that there are no lower bids. If there is enough equity in the home, the hope is that there will be a third-party bidder who will bid above the amount owed to the association. In that case, the Association is paid in two weeks. If there is not enough equity and no third-party bidder, then the property reverts to the association, and the association then must rehab and rent or sell the home to collect the amount owed.

ARS 33-1807 provides for the statutory lien priority. A first mortgage is superior to the Association’s lien. This means that when the Association forecloses on its lien, the first mortgage is still in effect and must be paid. That is why we look for homes with enough equity to foreclose on.

If the first mortgage holder forecloses on its lien because an unpaid mortgage, the bank will hold a trustee’s sale, and the property will be auctioned off. Because a first mortgage is superior to the Association’s lien, a first mortgage trustee’s sale will quash the association’s lien. The lien would no longer be in effect to the date of the Trustee’s sale. However, the previous owner of the property that lost the home to the bank is still personally liable for the assessments, even without the lien. In the event of a bank foreclosure of a first mortgage, the lien does not transfer to the new owner.

I have copied the applicable statute below. Let me know if you have any questions,

33-1807. Lien for assessments; priority; mechanics' and materialmen's liens; notice

A. The association has a lien on a unit for any assessment levied against that unit from the time the assessment becomes due. The association's lien for assessments, for charges for late payment of those assessments, for reasonable collection fees and for reasonable attorney fees and costs incurred with respect to those assessments may be foreclosed in the same manner as a mortgage on real estate but may be foreclosed only if the owner has been delinquent in the payment of monies secured by the lien, excluding reasonable collection fees, reasonable attorney fees and charges for late payment of and costs incurred with respect to those assessments, for a period of one year or in the amount of $1,200 or more, whichever occurs first, as determined on the date the action is filed. Fees, charges, late charges, monetary penalties and interest charged pursuant to section 33-1803, other than charges for late payment of assessments are not enforceable as assessments under this section. If an assessment is payable in installments, the full amount of the assessment is a lien from the time the first installment of the assessment becomes due. The association has a lien for fees, charges, late charges, other than charges for late payment of assessments, monetary penalties or interest charged pursuant to section 33-1803 after the entry of a judgment in a civil suit for those fees, charges, late charges, monetary penalties or interest from a court of competent jurisdiction and the recording of that judgment in the office of the county recorder as otherwise provided by law. The association's lien for monies other than for assessments, for charges for late payment of those assessments, for reasonable collection fees and for reasonable attorney fees and costs incurred with respect to those assessments may not be foreclosed and is effective only on conveyance of any interest in the real property.

B. A lien for assessments, for charges for late payment of those assessments, for reasonable collection fees and for reasonable attorney fees and costs incurred with respect to those assessments under this section is prior to all other liens, interests and encumbrances on a unit except:

1. Liens and encumbrances recorded before the recordation of the declaration.

2. A recorded first mortgage on the unit, a seller's interest in a first contract for sale pursuant to chapter 6, article 3 of this title on the unit recorded prior to the lien arising pursuant to subsection A of this section or a recorded first deed of trust on the unit.

3. Liens for real estate taxes and other governmental assessments or charges against the unit.

Thanks Everyone for the responses. I learned a few things since my original post. The HOA mgmt. company can withhold the disclosures on the current delinquency amount unless its a title company or attorney asking formally. I also learned that the HOA Lien falls in a foreclosure sale, regardless of where it is in the lien priority line.

Jacob, I did actually wind up getting this info from my Title guy's attorney, I was just waiting for confirmation before posting this as the title guy himself wasn't sure - that's definitely the best place to go for these types of questions - he doesn't want to get it wrong either when it comes time to insuring the title :o)  

Chad, you are correct - the first lien on the mortgage is causing this foreclosure, not the HOA lien, which came over a year later. Not sure why the HOA bothered to file the lean on a property that's being foreclosed on and going to auction, but at this point I feel confident having my client bid on it.

Thanks again, guys!  

Thanks for the response, Wayne. I know under normal circumstances, the title search process prior to closing includes disclosure of any adverse conditions from the HOA so the buyer isn't surprised by an assessment delinquency or unauthorized modification that the new owner will have to mitigate, and could possibly face a lien in the future for. I hope that's the law in every state. The rules might be different for foreclosure sales however (that's what I'm trying to determine). I thought perhaps being a licensed agent would remove the "yahoo off the street" aspect. In AZ, the HOA debt "remains with the property" to protect the HOA, which is understandable.  Unfortunately this policy has been abused in the past where insane interest (up to 25% is allowed), as well as unreasonable attorney and collection fees have been tacked on, making it almost impossible for the owner to overcome.  Not sure if I can post a URL on this forum, but have a look at this example.  I didn't know it, but apparently it is (or was) a real dark spot in the industry for awhile.  https://www.azcentral.com/stor...

Hi, new to BP and love what I'm seeing so far!  I'm an AZ-licensed RE agent and have a question that nobody seems to have an answer for (except possibly an attorney).

Situation: Auction.com is having an upcoming foreclosure/trustee sale. In the prelim title report, the recorded Notice of Trustee Sale was dated in 2015. The HOA's Notice of Claim of Lien is dated 2019 so the foreclosure is not the result of unpaid HOA assessments, but lien priority will definitely protect the HOA to clear the title. Auction.com says the winner will receive a "Foreclosure Deed" at close and its "up to the buyer" to clear the title.

Concern: In the HOA Lien document, a clause states "the said assessment due for the property is of a continuing nature and the stated as due and owing in the lean will increase and will continue to increase and accrue, plus interest charges, approved by the HOA board of directors, if non-payment continues".

I'm aware there are maximum lawyer's fees, collection fees, interest, etc that can be charged to the buyer per AZ laws but I haven't read anywhere that there's a maximum HOA assessment delinquency that can be charged. Because so much time has lapsed since the HOA lien was filed, (with a fairly large delinquent amount to start with) the final number owed to the HOA (likely by my buyer) at closing could be huge.

I've tried everything on my own to find out what the current delinquency amount is in order to make an informed bidding decision. The HOA company says they can't disclose the amount and sent me to their attorney, who says they don't know and sent me to the collections company, who says to call the HOA company. I'm aware that under normal circumstances, the HOA has to disclose all things that can affect title to the property but all bets seem to be off for a prospective buyer in a foreclosure sale.

My question: Does the HOA have to, by law, disclose to the buyer the current delinquency prior to close, even though its a foreclosure sale? Do I HAVE to involve a lawyer to force them disclose?

Most HOA lawyers I spoke with quoted $500 just to sit and talk about it for 30 minutes. I'd hate to find out that I could've just taken legal action against the HOA to disclose without involving a lawyer. I'd also hate to find out that I missed an online article somewhere saying the law states the HOA doesn't have to disclose the amount when it's a foreclosure auction. Call me cheap, but if the amount owed the HOA is astronomical, we're not bidding anyway. Hoping someone here has run into a similar situation and can advise.

Thanks for reading this long post!

-John in Phx, AZ