Assessment Liens and Where They Sit Against a Mortgage
An association lien and a bank mortgage compete for the same property. In most states the mortgage wins, except for a narrow slice of recent assessments that jumps ahead, and the size of that slice decides whether a foreclosure leaves the association paid or empty-handed.
The rule in short
An assessment lien generally relates back to the recording of the declaration, which would put it ahead of every later mortgage. Most states reverse that result for first mortgages, leaving the association subordinate except for a limited priority slice. Some states express the slice as a fixed number of months of common expense assessments; others cap the mortgagee's exposure at the lesser of a period of assessments or a percentage of the original mortgage debt.
Two liens sit on the same unit. The bank recorded a deed of trust when the owner bought. The association's claim for unpaid assessments arrived later in time but, under the ordinary rule, relates back to the recording of the declaration, which predates everything. If that rule were applied without modification, the association would outrank every mortgage in the community, and no lender would write a loan there. Every state has resolved the problem, and the ways they did it differ enough to change the outcome by tens of thousands of dollars.
Getting a lien in the first place
The lien is usually automatic in the sense that the declaration creates it, but enforcing it is not. Statutes typically require the association to record a notice of delinquent assessment stating the amount, a legal description of the separate interest, and the name of the record owner, and to record an itemized statement of the charges with it.
Procedure precedes recording. Many statutes require a written pre-lien notice delivered a set period before recording, an offer of a payment plan, an opportunity to request dispute resolution, and a recorded board vote taken in executive session. Each of those is a place a lien can be defeated on procedure without anyone reaching the merits.
Some states use a different instrument entirely. Virginia's association files a memorandum of lien in the circuit court clerk's office, and the statute imposes its own filing deadline measured from when the assessment came due. Miss the window and the lien is not merely late; it does not exist.
The general rule: the first mortgage wins
Statutes uniformly subordinate the association lien to a first mortgage of record, and often to real property taxes and other government assessments as well. The mechanism varies. Florida's planned community statute provides that the lien relates back to the recording of the original declaration, but that as to first mortgages of record the lien is effective only from the recording of a claim of lien.
The consequence in a lender foreclosure is severe. The subordinate portion of the association lien is extinguished, and the association's claim against the property disappears with it. What survives is the personal obligation of the former owner, which is worth whatever that person is worth.
A purchaser at a foreclosure sale becomes liable for assessments that come due while they own the unit, and many statutes make a new owner jointly and severally liable with the previous owner for amounts that came due before the transfer. Investors who buy at auction expecting a clean ledger frequently discover that the statute gives the association a claim against them personally for at least part of the arrears.
| Approach | What comes ahead of the first mortgage | Who bears the shortfall |
|---|---|---|
| Uniform act priority slice | A fixed number of months of assessments based on the periodic budget, plus limited costs | The lender, up to the slice |
| Slice with a federal secondary market floor | The statutory period, but not less than the stated minimum | The lender, at the floor amount |
| Safe harbor cap on the acquiring mortgagee | The lesser of a period of assessments or a percentage of the original mortgage debt | Shared, with the remainder falling on the other owners |
| Pure subordination with no slice | Nothing | The association and the remaining owners |
| Association forecloses first | The whole lien, subject to the mortgage surviving the sale | The buyer, who takes subject to the mortgage |
The slice that jumps the line
The uniform act's answer, adopted in many states, is a limited priority. The association lien is prior to a first security interest to the extent of the common expense assessments based on the periodic budget that would have become due during a stated number of months immediately preceding the recording of the notice of default, plus certain enforcement costs. Nevada's version uses nine months and adds a floor: if federal secondary market requirements would compel a shorter period, the priority period may not fall below six months.
Florida takes a different route for condominiums. Rather than granting the association priority, the statute caps the first mortgagee's liability on acquiring title at the lesser of the unit's unpaid common expenses and regular periodic assessments that accrued during the twelve months immediately preceding acquisition of title, or one percent of the original mortgage debt. The cap applies only if the mortgagee joined the association as a defendant in the foreclosure action.
The difference matters. A percentage-of-debt cap can produce a very small number on a large loan, while a months-of-assessments slice tracks what the community actually lost. Boards budgeting for delinquencies need to know which model their state uses before assuming a foreclosure will make them whole.
When the association is the one foreclosing
An association foreclosure produces a different result from a lender foreclosure, and owners frequently misunderstand it. The association is selling its own subordinate interest. The first mortgage is not extinguished; it survives the sale, and whoever buys takes the unit subject to it. That is why association foreclosure sales attract bidders willing to pay only a small amount, in the hope of collecting rent until the lender acts.
The procedure depends on the state. Some allow non-judicial sale under a power in the declaration, with recorded notices, a waiting period and a public auction. Others require a judicial action. Virginia's scheme uses a memorandum of lien and a trustee sale with an accounting confirmed by a court officer, and it sets a period after confirmation during which the sale may still be set aside.
Redemption rights often apply. Several states give the delinquent owner a stated period after the sale to redeem by paying the debt and costs, which delays the purchaser's ability to take possession and further depresses what these sales bring.
Sequencing collection before the lender acts
Timing decides recovery. The priority slice is measured backward from the recording of the association's notice, so an association that waits collects less. Where the state instead caps the mortgagee's exposure at a period preceding acquisition of title, delay matters less, but the association still needs to be joined as a defendant to be protected.
Several states now restrict foreclosure outright below a threshold. One statute bars judicial or non-judicial foreclosure for a debt of less than a stated dollar amount, excluding late charges, fees, costs and interest, and directs the association to small claims court or another civil action instead. The same scheme permits foreclosure once the debt has been delinquent for a stated period regardless of amount.
Boards should also confirm that the assessment being collected was validly levied in the first place. An assessment adopted outside the budget without the required approval is vulnerable, as explained in the article on the vote threshold for an assessment outside the budget. The obligation itself comes from the recorded documents described in the article on why the declaration binds a buyer who never signed it, and the decision to foreclose is usually one of the matters that must be taken in closed session, a point covered in the article on board business done behind closed doors.
Points to carry away
- The association lien commonly relates back to the recording of the declaration, but statutes subordinate it to first mortgages.
- A limited super-priority slice comes ahead of the first mortgage in many states.
- Some states instead cap the acquiring mortgagee's liability at the lesser of a period of assessments or a percentage of the original debt.
- A first mortgage foreclosure extinguishes the subordinate part of the lien but not the former owner's personal debt.
- A purchaser at foreclosure becomes liable for assessments coming due after acquiring title.
Questions readers ask
Does foreclosure erase what the former owner owed?
It erases the lien on the property to the extent the lien was subordinate, not the debt. The former owner remains personally liable for assessments that came due while they held title, and the association can sue on that debt or pursue a judgment. Whether collection is worth pursuing is a separate question. Many statutes also make the new owner jointly and severally liable with the previous owner for unpaid amounts, which is why estoppel or demand letters are obtained before any transfer.
What is a demand or estoppel letter and why does it matter?
It is a written statement from the association of the amounts owed on a specific unit, requested before closing. Most statutes require the association to produce one within a stated period and cap what it may charge. The statement generally binds the association as to the amount, so a buyer who closes in reliance on it is protected from a later claim for sums that were omitted. A closing that proceeds without one leaves the buyer exposed to whatever the ledger actually shows.
Can an association foreclose for a small balance?
Several states now say no. Some prohibit foreclosure unless the delinquent assessments exceed a stated dollar amount or have been delinquent for a stated period, leaving the association to collect through a money action or a small claims case instead. Others require the board to vote in a properly noticed executive session before recording a lien or starting foreclosure, and to offer a payment plan first. Skipping those steps can invalidate the foreclosure.
Sources
- Nevada Revised Statutes Chapter 116 — Common-Interest Ownership (Uniform Act)A uniform act enactment with a nine month priority slice and a six month floor tied to federal secondary market requirements.
- Florida Statutes § 718.116 — Assessments; liability; lien and priorityThe safe harbor limiting a first mortgagee's liability to the lesser of twelve months of assessments or one percent of the original mortgage debt.
- Florida Statutes § 720.3085 — Payment for assessments; lien claimsRelation back of the lien to the recording of the declaration, and the different rule for first mortgages of record.
- California Civil Code § 5675 — Notice of delinquent assessmentWhat must be recorded for an assessment lien to exist and what must accompany it.
- California Civil Code § 5720 — Limits on foreclosure of an assessment lienThe dollar and time thresholds below which foreclosure is prohibited and the alternatives available.
- Virginia Code § 55.1-1833 — Lien for assessments; foreclosureA memorandum of lien regime with its own filing deadline and non-judicial sale procedure.
- Uniform Law Commission — Common Interest Ownership ActThe uniform source of the limited priority approach adopted in many states.
Metro Law Advisors is a publication, not a law firm. This article states general rules and cites its sources; it is not advice about any particular case, and the law differs by state and changes over time.
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