The short version of today’s post is: Always pay your homeowner’s association assessments in Tennessee.
In general, an HOA is created by the recording of a Master Deed for the community, and this Master Deed imposes a number of duties and responsibilities on the lots, generally via declarations and by-laws.
Because the Master Deed is recorded before any properties are conveyed to owners, it pre-dates those deeds and, to be doubly certain, the deeds to the lots generally contain language that expressly state that the transfer is subject to the obligations in the Master Deeds and By-Laws.
Every Master Deed you’ll ever see allows the HOA to make monetary assessments against the lots, assert liens against the lots for any unpaid assessments, and foreclose the property as a way to enforce the lien.
In some cases, the HOA’s lien rights relate back all the way to the recording of the Master Deed.
HOA foreclosures used to be rare, but, in this awful economy, I’m starting to see more of them. As a result, I’ve been spending more time with Tenn. Code Ann. § 66-27-415, a little-known (and very confusing) statute that provides the broad outline of the foreclosure process for homeowner’s association liens.
In short, the process is similar to the standard “deed of trust” foreclosure process found at Tenn. Code Ann. § 35-5-101, et. seq., but with some notable exceptions.
Notice. Per Tenn. Code Ann. §§ 66-27-415(a)(3) and (4), the HOA must provide notice of the sale via “United States mail, postage prepaid,” with that notice “deemed received three (3) days after deposit” in the mail. The notice is to be sent to “the unit” unless the owner has provided an alternate address to the HOA. (Note: A deed of trust foreclosure requires notice to be sent via certified mail, return receipt requested.)
Priority. Per §§ 66-27-415(b)(1), the HOA lien will be ahead of “all other liens and encumbrances” except: (A) liens that pre-date the Master Deed; (B) a “first” mortgage on the unit; and (C) ad valorem taxes. To be clear, a HOA lien may be able to jump ahead of second mortgages and judgment liens, even where those liens were recorded before the assessment came due.
Limited Super-Priority. Notwithstanding the carve-out for first mortgages, under § 66-27-415(b)(2), a owner’s association may claim a super-priority of six months’ of assessments from a first mortgage’s foreclosure.
Rights of redemption are statutorily waived. Per § 415(b)(3), the HOA lien “is not subject to the statutory or other right of redemption, homestead, or any other exemption, unless specifically reserved in the declaration.”
No Notice of Lien is Required. Under § 415(d)(1), the notice to the world of the lien is in the Master Deed.
Sure, the first step is to look at what the Declarations and By-laws say about foreclosure. Most likely, you’ll find a broad and inconsistent range of requirements. That’s why Tenn. Code Ann. § 66-27-415 is so useful. It is designed to impose a level of uniformity to the process.
Creditors Rights 101 