When you fail to pay a debt, you can expect to receive a series of telephone calls and letters from your creditor requesting payment. Enforcement techniques differ depending on the creditor. Homeowner associations and the Internal Revenue Service, however, often use real estate liens to force you to pay your debts. Once a creditor attaches a real estate lien to your home's title, you cannot sell the property without paying off the debt. In some cases, the creditor may even foreclose on the home.
Types of Liens
An HOA's real estate lien encumbers your home's title and, if you do not pay off the debt (usually association fees) gives the HOA the ability to call the lien due and seize your home. An HOA lien attaches only to the property in question. The HOA cannot use that lien to foreclose on other property you own, such as a vacation home or vehicle. IRS liens, however, are “blanket liens.” This means that an IRS lien automatically attaches to all of your assets and gives the IRS the legal right to seize your home, car, or any other nonexempt property you own.
When a creditor forecloses on your home, it must pay off each lien the property carries in the order those liens were filed. This is known as “lien priority.” IRS liens adhere to the same lien priority rules that affect most other creditors. They do not receive a higher priority merely because the debt that created the lien was a federal obligation. Your HOA, however, may play by different rules. In 16 states, as of publication, HOA liens have first priority regardless of when they were filed. This makes your HOA first in line for payment over other creditors, such as your mortgage company or the IRS.
Your HOA has the right to foreclose on its lien if you don't pay your delinquent debt. State laws vary, however, and your HOA may need to meet certain criteria before it can begin the foreclosure process. In California, for example, the lien must be for at $1,800 and be at least 12 months delinquent before the HOA can foreclose. IRS liens are federal and not regulated by state law. Thus, the IRS can foreclose on its lien at any time, regardless of how much you owe.
Statute of Limitations
Regardless of whether the lien on your home is a tax lien or an HOA lien, a statute of limitations applies that prevents the lien from remaining enforceable indefinitely. IRS debts, for example, are only enforceable for 10 years from the date the tax debt was assessed. If the IRS has not collected on its lien by the time the statute of limitations expires, it must release the lien. The statute of limitations for HOA liens is slightly more complex. Because the time frame is dictated by the state rather than the federal government, the amount of time an HOA has to enforce its lien will vary depending on your state of residence. Once the enforcement period expires, the HOA loses its right to foreclose on its lien.
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