November 2009 Vol. 2, No. 11
 

Underwriters' Bulletin

Claims Corner

Liens

Homeowner's Association Liens

ATG has had claims over the years for unpaid homeowner's assessments. These claims typically arise because no paid assessment letter was obtained from the homeowner's association and the commitment contained an exception for assessments, which was waived. As the number of foreclosures has increased, there has been an increase in the number of properties that are owned by lenders. The transaction after the foreclosure, where a lender is selling the property to a third party, is known as the REO transaction. (REO stands for Real Estate Owned.) The increase in REO transactions has also increased the number of claims that ATG has received for unpaid homeowner's association dues. The main reason is that the lender, unlike a typical "seller" who once lived in the property, is not aware that there is a homeowner's association.

To determine if a property is subject to a homeowner's association, ATG agents should review all covenants, conditions, and restrictions that are recorded against the property. An exception should be raised for all covenants, conditions, and restrictions. A review of the covenants, conditions, and restrictions should reveal if there is a homeowner's association and whether or not there are assessments that are imposed by the homeowner's association. It is also a good idea to consult the realtor for the transaction. Frequently, a realtor who works in a particular area is aware of which subdivisions have homeowner's associations.

The covenants, conditions, and restrictions that created the homeowner's association should be raised as an exception. Unlike condominium assessments, homeowner's association liens are not valid against a purchaser or secured party unless a notice of the lien has been recorded. The claims arise when the commitment contains an exception for assessments due and owing or an exception requiring a paid assessment letter and no provisions are made at the closing to pay the assessments. Since the assessments are not liens unless a notice of lien has been recorded any exception like the above two that is raised may create additional liability. If you raise such and exceptions, make sure that all assessments are paid.

ATG agents may come across a recorded notice of lien in a search. An association can record a lien for the nonpayment of association assessments. The lien can be foreclosed in the same manner that a mortgage is foreclosed. A lien for unpaid assessments is valid for ten years. If the transaction you are involved in is an REO, a review of the foreclosure proceedings will reveal whether the lien was eliminated. To eliminate the lien the homeowner's association had to be a party to the foreclosure and properly served.

If you have any questions about homeowner's association liens, contact the ATG Underwriting Department,legal@atgf.com, 217.403.0020, or 312.752.1990. Thank you.

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[Last update: 12-2-09]