My New Home Was an HOA Foreclosure. Could Your HOA Take Your House?

Recently, I purchased a new home from investors who bought it after it was foreclosed on. The mortgage lender didn't take the house, though. Instead, the homeowners association (HOA) was the one that ended up getting a court order to foreclose on the home and have it sold.

This may come as a surprise, since many people assume mortgage lenders are almost always the ones who foreclose and take homes. But the reality is, if you live in an HOA neighborhood, there may be a possibility that your association could come after your property if things go wrong. Here's why.

HOA foreclosures are a real possibility, depending on governing documents and state laws

When you buy a home in a neighborhood with a homeowners association, you agree to be bound by certain rules and regulations. Typically, you must pay association fees and dues on a set schedule. Your association may also have the right to impose fines if you violate certain regulations in the neighborhood, like failing to cut the grass.

The rules governing your association typically give your HOA the right to force you to pay fines and fees -- and it can do this by putting a lien on your home if you don't comply voluntarily and pay up.

A lien is a claim against the property that gives the HOA an ownership interest. While state laws sometimes limit exactly when HOAs can place a lien (for example, the fine may have to be for a certain amount before it can act), this is generally a legal right afforded to associations across the country.

Once an HOA has a lien on your home, it can enforce it just like a mortgage lender or other creditor. This means the HOA can generally go to court and ask the court to foreclose on your home and require it to be sold. They can do this even if you are current on your mortgage payments and, in some cases, HOAs actually have first priority to claim money that comes from a foreclosure sale even above mortgage lenders or other creditors.

You do have some options to try to stop the process, such as by contesting whether the HOA assessment is fair or by paying the full amount due out of your checking account. But if you don't make good on the loan and you legitimately owe the association money, you could very well end up losing your home, just as the prior owner of my house did.

Know what you're getting into when you buying in an HOA neighborhood

The reality is, homeowners associations are not just a community of neighbors or an organization looking out for your property value. They have a lot of power over your life, and living in an HOA community can affect your finances.

If you're considering buying a house governed by an association, be sure you read the rules carefully, understand the costs, and really take the time to decide if you're comfortable with what the association requires of you. Otherwise, you could come to regret moving in -- especially if you fall behind on paying and the HOA ends up trying to take your house.