Super Liens: How Homeowners’ Association Fees Can Impact Property Finances

Homeowner associations, commonly abbreviated to HOAs, serve many purposes: keeping up property values, marketing a neighborhood or residential block to prospective buyers, and generally maintaining a high standard of living for area residents. These services are usually funded by fees and contributions from the areas’ homeowners, and governed by professional real estate developers.

If the owner of an HOA-governed home fails to pay their required fees and special assessments, a lien can automatically be leveled upon the property. In certain states, these can even qualify as a “super liens” that are given high legal priority and present significant risk exposure for potential investors.

What Is A Super Lien?

In the most general terms, a lien is a form of debt security. If an individual owns property that is not paid off, and subsequently fails to make good on their debt, the lender is granted certain rights such as the ability to sell the property and recoup their funds. A super lien is simply a lien that takes priority over all others: in the event of a foreclosure sale, it is paid off in full first and any other debts are addressed by the remaining funds. This is a significant departure from the typical structure, in which first mortgages are granted priority over all other liens and encumbrances on a property.

Super Liens and First Mortgages

Approximately 20 states grant HOA liens “super lien” status, making them senior to even first mortgages. Depending on the state’s specific bylaws, this means that HOAs are technically allowed to foreclose on properties in the event of unpaid fees. In practice, however, this rarely happens: a mortgage lender will typically choose to pay off the amount in order to preserve its status as first in line.

Why Checking for Super Liens is Necessary

Thoroughly examining a homeowner’s  financial standing, both present and past, is critical before embarking on any kind of real estate transaction. This is doubly important for states with HOA super lien allowances. While the actual amount owed may be relatively minor, the priority status given to an HOA lien can cause major complications in terms of assessment, foreclosure, and eventual debt repayment. Savvy buyers and realtors will give the utmost care to making sure that all property information is present and correct in order to avoid unpleasant surprises down the road.

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