A homeowners association (HOA) assessment lien is a lien on a property if the homeowner becomes delinquent in paying the monthly fees and/or any special assessments (usually collectively referred to as “assessments”). State law determines the priority of an assessment lien. HOA liens are often junior to first-mortgage liens.
Some states have provided “Super Lien” status to HOA assessment liens. A super lien is a category of lien that is given a higher priority than all other types of liens. When it comes to HOA assessment liens, a super lien refers to that portion of a homeowners’ association lien that is given higher priority than even the first-mortgage holder, placing the interest of the HOA in front of the first mortgage. This is similar to a property tax lien or mechanic’s lien.
If the HOA forecloses a super lien, not only does it collect its debt, it may eliminate the first mortgage, as well as any other junior liens on the property. Consequently, when a lender is notified that a foreclosure has been initiated by the HOA for unpaid assessments in a super-lien state, in most cases, the lender pays off the super-lien amount to preserve its position as the first-lien holder and stop the foreclosure.
Recently the Nevada Supreme Court held that:

  1. an HOA super-priority lien is a “true super-priority” lien;
  2. properly conducted foreclosure on the HOA lien extinguishes (previously considered) first deeds of trust; and
  3. the HOA lien can be foreclosed upon non-judicially.

Does your portfolio contain proprieties that are part of a HOA? Is the property located in a state that provides for HOA “Super Liens”? If yes, this potential threat adds additional risk to your portfolio. Tracking of loans with potential HOA “Super Lien” issues and early intervention in cases where HOA fees are not paid would be prudent.