I was reviewing some information and came across some interesting issues regarding liens and HOAs. It seems that when the builder is working the house and before the home is actually sold the HOA establishes its lien. So essentially they have a superior lien to the first mortgagor. However, because of the subordination clause the first lien mortgagor takes a superior lien position to the HOA. Obviously, a bank wouldn’t want to fund a mortgage for thousands of dollars knowing it had a subordinate lien to the HOA. Now, the homeowner can’t pay the bills so the first lien creditor files a foreclosure. The foreclosure action wipes out all subordinate liens. (Not taxes because taxes are superior liens to EVERYBODY) So the first lien creditor wipes out the HOA and the second mortgage creditor (if there is one). The first lien creditor now decides to sell off the property. They sell the property and now the property, within the HOA neighborhood, is free of an HOA lien. Unless the potential homeowner that is buying the foreclosed property is willing to subjugate themselves to the HOA voluntarily (which would be nutty)…where does that leave the HOA?
If I am way off base on this I would love to hear it….please post comments or concerns.