If a resident doesn’t pay the fees and special assessments imposed by their homeowners’ association (HOA), in most cases, a lien will attach to their property. In certain states, homeowners’ association liens are given “super priority lien” status, as is the case in Nevada.
Generally, when a home is purchased, a first mortgage is taken out, which is recorded first and becomes the first lien. In some cases, a second mortgage may be taken out, which is recorded second and becomes the second lien. Priority is generally established by the recording date.
Lien priority determines the order in which lien holders are paid the proceeds of a foreclosure sale. In most cases, especially when a property is underwater (where the fair market value of the home is less than the outstanding debt), all the proceeds from a foreclosure sale will go to the first mortgage holder. Junior lien holders often receive nothing.
A super priority lien is a category of lien that, pursuant to state statute, is given a higher priority than all other types of liens. When it comes to HOA assessment liens, a super priority lien refers to that portion of an HOA lien that is given higher priority than even the first mortgage holder, placing the interest of the HOA in front of the first mortgage holder.
If the HOA forecloses a super priority lien, it may, in some cases, eliminate the first mortgage. For example, in Nevada, the Supreme Court has ruled that an HOA foreclosing a super priority lien can extinguish a first deed of trust.
A typical scenario of this Supreme Court ruling occurs when a homeowner defaults on HOA dues but instead of the lender initiating foreclosure proceedings, the HOA does so and (typically) auctions the property in the same way that the bank would.
However, because the HOA has super priority status, the winning bidder for the property pays the HOA the back dues and, under Nevada law, the remaining debts are extinguished. The lenders get nothing. The dollar losses endured by the lender will typically far exceed those of the HOA.
The survey conducted by SGS in November 2016 showed that 85% of respondents oppose HOAs having the power to foreclose on homes over unpaid association dues and 82% of our respondents think that the mortgage lender should be paid first, not the HOA.