What is an Assessment Lien?
An assessment lien is an automatic lien that attached to a homeowners property for the benefit of a homeowners' association (the "HOA") once any HOA member becomes delinquent on HOA assessments. An assessment lien allows the HOA to sell the homeowners property to repay assessments owed to the HOA. The assessment lien also operates as a cloud on title, essentially prohibiting a homeowner from selling or refinancing the property that is subject to an assessment lien until the lien is satisfied.
How is an Assessment Lien Created?
In most cases, assessment liens are automatically created against a homeowners property as soon as the homeowner becomes past due on assessments. To provide the public with notice of this assessment lien, HOAs commonly record a "Notice of Lien" or similarly titled document with the county recorder's office that describes the property subject to the assessment lien and the amount the HOA claims is owed.
Can my HOA Record an Assessment Lien Against my Home?
Nearly every HOA has the power to place assessment liens on properties owned by members who are past due in assessments. The Arizona Planned Community Act and Condominium Act grant such power to HOAs. So long as the HOA is a "Planned Community" or a "Condominium" it is afforded automatic assessment liens. Generally, the distinction between "Planned Community" and "Condominium" comes from how the common areas in the community are owned. In a condominium, the homeowners share equally in the ownership of the common areas. For example, each owner will own an undivided 1/100 th interest in the common areas. In Planned Communities, the common area is owned by the HOA itself. A few HOAs are neither Planned Communities nor Condominiums; however, these HOAs may still have assessment lien rights arising out of the HOA's governing documents rather than from Arizona law.
Can my HOA Sell my Home?
Yes. An assessment lien is a lien placed upon an association member's home that may be judicially foreclosed, meaning the property may eventually be sold to satisfy the HOA's debt.
How Soon Can an HOA Sell my Home?
Assessment liens must be judicially foreclosed, which is a lengthy and expensive process whereby an HOA essentially asks a judge for permission to sell the homeowners property. Unlike trustee sales, which are the most common method for homes to be "foreclosed" in Arizona, judicial foreclosure is a longer process that grants homeowners certain rights to redeem the property and repay the debt. An HOA can never sell a homeowners property unless it first files a lawsuit against the homeowner seeking foreclosure of the assessment lien.
Also, an HOA may not even begin a judicial foreclosure lawsuit until the homeowner is at least $1,200.00 or one year past due in assessments. An HOA lawsuit filed too early can be dismissed.
How Does an HOA Collect its Assessment Liens?
HOAs must file a lawsuit and receive a favorable judgment in order to foreclose an assessment lien. This process can be costly and time consuming for an HOA; therefore, HOAs often decide not to incur this expense. Instead, the HOA will merely record an assessment lien against the home with the county recorder's office and wait for the lien to be repaid. This recording puts the public on notice that this particular property is subject to an assessment lien. Properties subject to an assessment lien are almost never refinanced or sold until the lien is removed; therefore, HOAs sometimes record the lien and wait to be paid from the property's next transaction.
How Long is an Assessment Lien Valid?
Assessment liens are automatically extinguished if collection proceedings are not brought within three years. An HOA may still sue a homeowner for up to six years of unpaid assessments, which is Arizona's statute of limitations for breach of contract cases. However, the HOA will only have assessment lien rights for the preceding three years of unpaid assessments. If an HOA decides to sue a homeowner for six years worth of unpaid assessments, the HOA's assessment lien rights are still only valid for the preceding three years.
Are There any Defenses to an Assessment Lien?
Yes. Assessment liens are sometimes invalid. Some common defenses to an assessment lien foreclosure lawsuit include: improper accounting by the HOA, failure to follow Arizona's assessment lien foreclosure statutes and the improper recording of an assessment lien.
Arizona law is clear that assessment liens can only be imposed for past due assessments and late fees, collection fees, and attorney fees related to these past due assessments. HOA fines or other charges unrelated to assessments may not be included in the assessment lien. Furthermore, payments to an HOA must first be applied to assessments before any other type of debt. Accordingly, assessment liens can be invalid if the HOA misapplies payments to another category instead of assessments.
As discussed above, an assessment lien foreclosure lawsuit can only be filed if the homeowner is delinquent at least $1,200.00 in overdue assessments or at least one year past due. If an HOA begins its foreclosure lawsuit too soon, the lawsuit can be dismissed.
Furthermore, if an assessment lien is improperly recorded against a property, the property owner can bring a wrongful lien claim against the recording HOA. This wrongful lien claim, found in Arizona Revised Statute § 33-420, provides a minimum $5,000.00 in damages against a party for improperly recording a lien, plus an additional $1,000.00 if the recorder refuses to promptly release the assessment lien. Attorneys' fees and costs may also be awarded to the prevailing party in such a claim.
Again, there are numerous defenses to an assessment lien that can potentially invalidate it. Before paying off an assessment lien, or deciding to contest such a lien, a homeowner should consult with a licensed Arizona attorney experienced in such matters to discuss all legal options applicable to the specific circumstance.
How Can I Remove an Assessment Lien From my Home?
A homeowner has two general options to remove an assessment lien. First, the assessment lien, along with all late charges and collection costs associated with the assessment lien, can be repaid in full. Second, a homeowner can contest the validity of the assessment lien in court by raising any applicable defenses and/or bringing any appropriate counterclaims against the HOA. Before selecting either of these options, it is recommended that any homeowner with an assessment lien against their property consult with an Arizona attorney experienced in such matters to completely evaluate the homeowners legal options. If the lien is invalid, a lawyer can often negotiate its removal or modification for you.
This article is not intended to be specific legal advice. It only provides general legal information. You should consult an Arizona licensed attorney if you have a legal issue. The Bainbridge Law Firm, L.L.C. is experienced in this area of law and are available for consultation. You may contact our Phoenix office at 602-274-6369.