HOAs Gain Important Victory in Multifaceted Lawsuits Over Assessment Liens and their Place in the Foreclosure Process

A recent class action lawsuit in the U.S. District Court of South Carolina served as another chapter in the national debate of the legality of lien foreclosure for community association assessments.

In January 2018, seven South Carolina real estate owners in community associations, sued not only their seven associations but also six management companies and four law firms. Each of the seven plaintiffs were subject to lien foreclosure actions at the time of the lawsuit due to unpaid assessments. Plaintiffs argued that South Carolina lacks statutory authority for such liens and equitable foreclosure. CAI submitted an amicus brief to dismiss the case, explaining to the court that the law of real covenants supports the creation of homeowners associations, and lien rights are derived from common law and require no statutory basis in South Carolina.

Fortunately for homeowners associations, the judge recognized the importance of assessment lien foreclosure and dismissed the case in June. The judge agreed with the defendants and CAI, explaining that the filing notice of liens and foreclosing on them in South Carolina is based on restrictive covenants engrained in the common law of the state.

Throughout the U.S., community associations with statutory or covenanted rights to assess their members for insurance, maintenance, management, or upkeep of property operated for the common benefit and enjoyment of their members have borne an ever-increasing burden of expenses and obligations historically paid for and performed by local governments. Failure to pay assessments in community associations is particularly unfair because an association’s expenses must be paid regardless of the delinquency. This effectively means that other owners in the community pay the delinquent owner’s share of the expenses while the delinquent owner (and that owner’s lender) continues to reap the benefits of living in a community association. Numerous delinquencies may impact the financial condition of the association and decrease property values throughout the community. Delinquencies must be addressed to minimize this unfairness and the potentially cumulative negative effects from nonpaying owners.

Associations need the discretion to determine the most effective collection technique for a delinquency, which may include payment plans, lawsuits, foreclosures, or other lawful collection methods. Notwithstanding various methods of collection, judicial, and non-judicial foreclosures are necessary and cost-effective methods of collecting assessments.

For now, lien foreclosure stands in South Carolina as a remedy to collect delinquent assessments. Check out our policy page on foreclosures to learn more about CAI’s stance on this issue.