Mortgage. A purchase money lien (mortgage) is recorded when a buyer borrows money to purchase a property. A mortgage secures the debt for the lender. Because purchase money liens are always first in line, they have priority over all other liens.
Assessment Liens. Assessment liens have priority over all other liens recorded subsequent to the notice of assessment, unless stated otherwise in the CC&Rs. (Civ. Code §5680.) In other words, once the mortgage is in place all subsequent liens, including an association's assessment lien, establish priority by their recording date.
A condominium assessment becomes a debt of the owner when the assessment is levied by the condominium association. The debt is only a personal obligation of the owner, however, until the community association records a notice of delinquent assessment against the owner's interest in the development. Recording this notice creates a lien and gives the association a security interest in the lot or unit against which the assessment was imposed. The lien dates from the time the lien is properly recorded. California follows the "first in time, first in right" system of lien priorities. Condominium assessment liens follow this same system. An assessment lien is prior to all other liens recorded subsequent to the notice of assessment, except that the [CC&Rs] may provide for the subordination thereof to any other liens and encumbrances. (Diamond Heights v. Financial Freedom, internal cites and quotes deleted)
IRS Lien Priority. For an HOA lien for future accruing delinquent assessments to have priority over a subsequent IRS lien, the CC&Rs should contain language that any lien on account of prior delinquencies shall be deemed to include subsequent delinquencies and amounts due on the account. (In Re Guajardo, 2016 Bankruptcy case.)
Home Equity Line of Credit (HELOC). Homeowners often establish a line of credit with a bank secured by equity in their home. HELOCs are frequently in a second position behind the mortgage because owners are normally current in their HOA dues when they set up the HELOC. If the owner subsequently runs into financial problems and stops paying his HOA dues, the association's lien for delinquent assessments will then be in the third position behind the mortgage and the HELOC.
Bank Foreclosure. If the bank forecloses on the mortgage and takes ownership of the property, the HELOC and the association's mortgage are both "wiped out." In other words, the association no longer has a claim on the property for the delinquent assessments. The association still has the right to sue the owner for a money judgment. Associations can record a blanket "Request for Notice" against all properties in the association so they can receive notice of the new owner whenever a lender forecloses.
Association Foreclosure. If the association forecloses, it takes ownership subject to any liens recorded before the association's assessment lien.
ASSISTANCE: Associations needing legal assistance can contact us. To stay current with issues affecting community associations, subscribe to the Davis-Stirling Newsletter.