HOA Foreclosure Vs. Bank Foreclosure
When most homeowners think of foreclosures, they think of the bank being the entity that initiates that process. While that is the most common form of foreclosure — for when homeowners fall behind on their mortgage payments — it’s not the only form.
In Michigan and some other states, homeowners’ associations and condominium associations can also obtain a lien against your property if you fail to pay their assessment dues. The HOA foreclosure process is similar in many ways to a traditional bank foreclosure, but there are some differences, too.
It’s important to understand what you could be facing if you don’t pay your HOA or COA dues. As such, we’ll outline the process below.
Can an HOA Foreclose on Your Home?
The simple answer to this is that, yes, an HOA or COA has the legal right to foreclose on your home. In Michigan, this is established under The Condominium Act.
The law states that if a homeowner falls behind on their HOA or COA assessments, the association may take legal action against the homeowner. This action can include obtaining a lien on the property and, eventually, foreclosing on the home if it makes sense to them.
In this regard, an HOA or COA acts similarly to a taxing entity such as the town, county and state in which you reside. By purchasing a home or unit that has an HOA, you have agreed to pay the assessment fees on a predetermined schedule — just as you have agreed to pay your mortgage to your bank and your property taxes to the local governments.
If you fail to pay these fees, then the HOA has a right to take legal action.
How Can an HOA Foreclose on Your Home?
If you’re behind on your HOA assessment fees, the association has the right to foreclose on your home. They can’t begin to take action in this regard until you’re delinquent for 30 days, though. This is slightly different from the bank, which can consider you delinquent on your mortgage payments if you’re one day past due.
It’s important to note that an HOA has the ability to foreclose on your home even if you’re current with your mortgage payment. The same holds true for government taxing entities: If you’re current with your mortgage but behind on your tax payments, those entities can foreclose, too.
The first step that an HOA will take in the foreclosure process is to serve a lien notice to the homeowner. The association will need to record the lien on the property with the county in which the property is located. Notice of this lien then must be sent to the homeowner at least 10 days before they’re able to proceed with the foreclosure process.
In this aspect, an HOA foreclosure can move faster than a bank foreclosure in Michigan — even though an HOA foreclosure process can’t start as quickly as a bank foreclosure can.
What the lien does is serve as a public notice that the HOA has a monetary claim to the property.
How an HOA Foreclosure Proceeds
Once the HOA foreclosure process begins, it will proceed the same as a bank foreclosure will. The HOA must set up a date for a sheriff’s sale and advertise in a local publication that date for four consecutive weeks.
Then, the home will be sold at auction during the sheriff’s sale, at which the HOA has a right to bid on the home. No matter who the new owner of the home is following the sheriff’s sale, the homeowner will still have a redemption period of six months
This redemption period provides the homeowner the chance to reclaim the home in question if they’re able to pay back all of their delinquent HOA assessment dues, plus any extra fees, interest charges and attorneys’ fees associated with it.
The only exception to this timeline is if the homeowner abandons the home in the process. If they do, then the redemption period is shortened to one month.
If the homeowner doesn’t redeem the property within this timeframe, then the new owner will officially take possession of the property and be allowed to do with it what they want.
Will an HOA Actually Foreclose on Your Home?
Just because an HOA has the legal right to foreclose on your home doesn’t mean they actually will. The challenge for HOAs in regard to foreclosures is what’s known as lien priority. This is what determines how all liens on a property are handled during the foreclosure process.
The lien priority will determine which entity gets paid first after a foreclosure sale is complete. Most liens will follow a rule known as “first in time, first in right.” This says that whatever lien is first recorded is the one that has a higher priority than others for payouts.
This means that the first lienholder will get their money first. If there are any proceeds left after that, they will go to any subsequent lienholder. It’s possible, then, that secondary lienholders may not get paid at all.
In Michigan, an HOA lien will serve as first priority to all others, except for federal or state tax liens or a first mortgage. In other words, if the homeowner has a mortgage on the home, the bank will receive what it’s due before the HOA would receive any money.
Because of this, some HOAs will pursue judicial foreclosures. That’s because their goal in a foreclosure is to collect their past dues — not to necessarily take ownership of a property. This would allow them to receive a court judgment on the property, which could lead to garnishment of wages so they can recoup their money.
Work with a Trusted HOA Foreclosure Lawyer
Michigan law can be quite complicated when it comes to HOA foreclosure vs. bank foreclosure. So, if your HOA is threatening legal action against you because you’re past due on assessment fees, it’s important to have experienced attorneys on your side.
The lawyers at Babi Legal Group have a combined 20 years of real estate experience that they use to represent homeowners who are in situations just like this. Contact us today to learn more about how we can help you.