What is a lien on a property and how does it affect your community? Whether you’re a board member or a homeowner, understanding your community’s collection guidelines and terminology can aid in protecting your finances as well as the health of your homeowner’s association.
While the collections process may be elaborate, starting with the basics of breaking down property liens can make a complex legal term, simpler to understand.
What is a Lien?
In general, a lien is a legal claim against a person or property as a means to secure payment of a debt. For several reasons, liens can be filed on many different types of properties or assets, such as homes, cars, or vacant lands. Some are voluntary, such as a mortgage or vehicle liens, allowing the lender to repossess the home or car if the owner fails to repay.
They can also be involuntary which are often imposed out of a legal obligation (court order). Some examples include Association, federal tax, Georgia Department of Revenue, mechanics and materialman’s, or judgment liens.
These typically occur when a homeowner fails to pay the agreed amounts. For government-issued federal tax liens, the owner has an obligation to pay income taxes. Failure to do so, entitles the Internal Revenue Service (IRS) to put a claim against the property for unpaid taxes.
Liens that concern Associations are Association liens and judgment liens. Today, we will focus on Association liens and why they are a powerful tool for Association collections. To put a lien on a property, the Association must prepare a document identifying the credit, property, debtor, as well as the amount. The county recording office records the document, and it becomes a public record.
Why Do HOAs File Liens?
When a homeowner in a community owes the Association, the Association can record a claim against the property preventing sale until the Association gets paid what is owed. If the association is subject to the Georgia Property Owners’ Association Act or Georgia Condominium Act, the Association has a statutory lien at all times against all owners.
Generally, this means that owners looking to sell their property need to check with the Association for outstanding debts. This can happen before or at the closing. If the Association is a condominium or a Property Owners Association (POAA) under Georgia law, the Association can file suit to obtain an order of judicial foreclosure of its statutory lien and foreclose on the property subject to the owner’s mortgage.
Liens are also an important protection if an owner files for bankruptcy. In bankruptcy, a recorded lien converts the Association from an unsecured creditor to a secured creditor. Unsecured creditors provide the owner’s promise to pay but are not secured by any assets. However, secured creditors are protected by their property.
Recording liens can be crucial especially before an owner files bankruptcy. Upon the filing of a bankruptcy petition, the automatic stay prevents all creditors from filing any liens. In general bankruptcy terms, secured creditors receive payment and unsecured creditors do not.
In NowackHoward’s Collections program, our collection efforts begin and end with the lien. Our first action when opening a file is to prepare a demand letter and record a lien, or notice of statutory lien. After full payment, the last action we take before closing the file is to release the lien. Once recorded, the Association’s lien or statutory lien expires after four (4) years.
What Are the Impacts of a Lien on Your Property?
Preventing Sale of Property
Most importantly, the lien can prevent the sale or refinancing of a property. The only exception is if all debt is paid off before or at the closing table. Sometimes this is the only way to collect amounts owed to the Association because the owners may be immune to garnishment or other collection methods. Even if the owner is not selling the property, a refinance can trigger repayment if the owner changes mortgage lenders.
Notice of Claim
The lien constitutes this information as public knowledge, especially for potential buyers. Conducting a title search can identify any information regarding the legal ownership of a piece of property that affects the title. That being said, title searches reveal creditor claims of a debt on a property and pending legal issues.
According to Georgia law, there is a crucial difference between a purchaser with knowledge of a property lien versus one who has no knowledge of the debt. Recording a lien in the county lien records eliminates this issue to protect potential buyers and other involved parties.
Issue a Judgment Lien
If an Association files suit against an owner and obtains a judgment, they are entitled to a special type of lien known as a Writ of Fieri Facias (“FiFa”), or judgment lien. The recording of a FiFa includes all property owned by the individual in the county.
This can be useful when an owner owns multiple properties in different communities. In some cases, homeowners may try to sell their other properties (outside the HOA) to avoid paying the debt. Regardless, the FiFa extends to all properties.
FiFa’s remain valid for seven (7) years and renewed indefinitely as long as the debt remains unpaid.
How Do You Remove a Lien?
The Association removes a lien if the amounts secured by the lien satisfy the debt. However, this is not as simple as paying the amount shown on the lien.
A lien generally represents a snapshot of the debt. Once recorded, the original amount of the lien is usually not the same as the payoff amount.
To ensure you have paid off all amounts owed, you should reach out to the creditor to request a payoff statement. For most POAs and condominiums, this information needs to be provided within five (5) business days of being requested. Otherwise, the Association could lose the right to repayment under the lien.
At NowackHoward, once we receive payment in full, we will stamp the lien with a cancellation and re-record the document in the county lien records. Once the release or cancellation is recorded, the lien is canceled and no longer acts as a cloud on the title.
Conclusion
As you can see, a lien is a powerful tool for community association collections. Liens represent a legal claim for amounts owed by a person or property, and they can be placed on many different types of property.
The most important liens for community associations are association liens, which are recorded against the property in the county’s public records. Recording a lien gives notice to everyone of a claim against the property, and can prevent the sale or refinance of a property if not paid at, or before closing.
If the Association obtained a judgment against an owner for unpaid amounts, the Association can obtain a special type of lien called a FiFa or judgment lien. This attaches to all property owned by the owner within the county, not just the property within the Association.
For specific issues related to your association, please reach out to our team today for more information!
