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"My Turn" opinion piece published 5/2/08 in the Scottsdale Republic

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Dues-paying HOA members hurt by foreclosures

Today's mortgage "crisis" has many victims. But sadly, under current Arizona law, responsible dues-paying members of homeowners associations carry the burden of unpaid monthly dues when a house transfers to a bank (or other financial institution) under the foreclosure process.

Unfortunately, not all members of homeowners associations pay their dues on time. It's difficult, time-consuming, and expensive for homeowners associations to follow the lengthy and complicated legal processes required to place a lien on the property and collect. But the homeowners associations (and their dues-paying members) have a last resort - they know that when the delinquent owner sells the house, the delinquencies will be paid, because the title company won't complete the title transfer until these amounts are settled. For many homeowners associations, this last resort is the only practical way to collect the delinquent dues.

Most of us would expect that in the unhappy event of a foreclosure, the same rule would apply- that is, we would expect the delinquent dues would be paid off during the process of the bank taking over ownership of the property from the delinquent homeowner. Unfortunately, that's not the case under Arizona law.

When the bank forecloses, the lien against the property for unpaid homeowner association dues is removed from the property, and the bank takes ownership of the home without being responsible for the unpaid dues. The debt for the unpaid dues is no longer connected to the property and now belongs to the former owner of the home. Of course if the former owners were already delinquent on their homeowner assessments, and were not making their mortgage payments, it's highly unlikely the homeowners association will have much luck collecting the delinquent amounts from them. The association's lien against the delinquent homeowner's property was the only protection it has -and now that lien is gone.

So if the house sells, the association will be paid what it is owned. But if the house is foreclosed on, the association is usually left holding the bag of unpaid dues, and the bank gets possession of the property without the lien and without having to pay the delinquent homeowner dues.

The effect of this unpaid debt is that the responsible members of the association who do pay their dues on time must make up the lost revenue to the association. Their monthly assessments must go up to pay for the lost monthly dues which were never collected. Following the oft-quoted principle that "no good deed goes unpunished," those who DO pay their monthly assessments end up with the burden of making up for the delinquencies of those who do NOT pay (if the property is foreclosed on).

This is clearly unjust.

While our state legislators work to deal with the economic impact on the state of the many foreclosures, they should also be working to protect the unintended victims of this terrible event - the dues-paying members of homeowners associations.

Simply put, our state law should require that all liens must be settled before ANY transfer of ownership can be completed - whether that transfer is the result of a sale or a foreclosure.


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