HOA – WASHINGTON STATE -PRIORITY LIEN STATUSSAFE AND SOUND LENDING (RCW 64.34, RCW 6.23, RCW 65.08)

HOMEOWNERS’ ASSOCIATION – PRIORITY LIEN

• General rule is that “first in time” has priority: if your lien or judgment is recorded in the real property records of the county where the property is located BEFORE any other lien then your lien has superiority.

• Exceptions to this rule include

• Real Estate Taxes

• Governmental Assessments or Charges on real property (sewer assessments, etc.)

• HOA assessments as set forth in the periodically issued budget of the HOA (excluding capital improvements)

• Other rules that affect these exceptions:

• If the other lien is a mortgage or other debt including IRS tax lien

• If the HOA forecloses their lien judicially vs non-judicially

• If the HOA lien is a “special” assessment

• If the HOA CC&Rs have lien subordination or priority language

PROCESS FLOW #1

Determine what liens exist, when they were

recorded or filed

HOA Declaration of Covenants Conditions & Restrictions (CCRs ) recorded

Lien for HOA assessments exist as of the recording date of the HOA’s CC&Rs, and if CC&Rs provide that assessments are superior lien, then HOA liens are superior to all later recorded liens and judgments, EXCEPT…

Mortgage or Deed of Trust recorded

Mortgage or DOT is superior to HOA lien assessments, if Mortgage or DOT is recorded PRIOR to HOA assessments becoming delinquent, EXCEPT… (RCW 64.34.364(2))“Lien arises upon delinquency, but the priority was established upon filing of the CC&Rs)

HOA Assessments delinquent (lien arises)

Up to 6 months of HOA assessments set forth in the periodically approved budget (not including capital improvements) have priority over Mortgages or DOTs.

Superior-priority lien for 6 months of assessments due PRIOR to:(i) the mortgagee or HOA Sheriff ’s Sale under judicial foreclosure or (ii) vendor’s Declaration of Forfeiture Notice of Real Estate Contract

PROCESS FLOW #2

Determine what liens exist, when they were

recorded or filed

HOA CCRs recorded

Lien for HOA assessments exist as of the recording date of the CC&Rs and are superior to all later recorded liens and judgments, IF….

HOA Assessments Delinquent

Delinquent HOA assessments are superior lien to all Mortgages or DOTs recorded AFTER the HOA assessments are delinquent

Mortgage or Deed of Trust recorded

Mortgage & DOTs are junior to all prior recorded liens including delinquent HOA assessments

Every lender should request a statement from the HOA showing the current, past due and delinquent HOA assessments to ensure the Mortgage or HOA is not subordinate to those delinquent HOA assessments which could result in the elimination of the Mortgage or DOT if the HOA forecloses on its lien.

PROCESS FLOW #3 – FIRST IN TIME

Determine what liens exist, when they were

recorded or filed

Mortgage or DOT recorded (usually to developer of HOA)

If the DOT or Mortgage is recorded prior to the recording of the CC&Rs, the DOT and Mortgage always has priority over the HOA assessments

HOA CC&Rs recorded

HOA assessments are subordinate to the prior recorded Mortgage or DOT

* If the Bank forecloses on its mortgage or DOT eliminating the HOA lien assessment on a unit, the HOA can re-assess all units to recover the delinquent amount as a “common expense.”

Other Lien

Mortgage & DOTs recorded subsequent to CC&Rs – see Process Flow #1 and #2

For all other types of liens and judgments recorded after the CCR’s are recorded, the other liens are subordinate to the prior recorded HOA CC&Rs and prior recorded Mortgage or DOT.

PROCESS FLOW #4 – TAXES AND ASSESSMENTS

Determine what liens exist, when they were

recorded or filed

HOA CCRs recorded

Lien for HOA assessments exist as of the recording date of the CC&Rs and are superior to all later recorded liens and judgments, EXCEPT…

Real Estate Taxes, Property assessments

RCW 84.60.010 Real estate taxes, governmental assessments and charges on real property always have super-priority lien status, EXCEPT…

IRS liens

IRS tax liens ONLY have priority AFTER Notice of Federal Tax Lien has been filed in the real property records. The federal tax lien arises and relates back to the assessment date. IRS 6323(a)

OTHER CONSIDERATIONS:1. There is no 6 month lien priority if the HOA forecloses its lien non-judicially.2. The 6 month super-priority lien for HOA assessments may be reduced to 3 months.3. Special HOA assessments that are not delinquent at the time the Mortgage or DOT is recorded, do

not have priority over the Mortgage or DOT and are not included in the 6 month super-priority lien.4. Statute of Limitations: HOA has three years to file a lawsuit to enforce its lien and or collect the debt

after the assessment becomes due or the lien (and personal liability of the debt) will be extinguished by operation of law. RCW 64.34.364(8)

5. The HOA can pursue collection of the unpaid assessment against the prior owner once a judgment has been obtained against the prior owner through the judicial foreclosure process.

6. If the unit is not owner occupied, the HOA may commence a foreclosure and seek appointment of a receiver (not sooner than 90 days after the assessment was first delinquent) to take possession of and rent out or charge the occupant rent for the unit. RCW 64.34.364(10)

7. After the HOA unit is sold at foreclosure, the unpaid assessment is deemed to be a “common expense” of the HOA. The HOA can re-assess all the units (including the foreclosed unit) for the delinquent unpaid assessment amount. RCW 64.34.364(11)

8. Redemption: Once an HOA forecloses on its lien, any lienholder who is “subsequent in priority” may redeem within one year after the sale (buy the property) by reimbursing the HOA or person who purchased the unit at the foreclosure for the bid amount plus other charges. RCW 6.23.010

Mortgagee can get the 6 month super-priority HOA lien reduced to 3 months if HOA fails to give Notice or gives Notice late:

If the Mortgagee fails to pay the delinquent assessments prior to the judicial foreclosure, the HOA foreclosure sale will eliminate the Mortgage/DOT. The Mortgagee may then “redeem” within one year by paying the bid amount and other costs. BAC Home Loans Servicing, LP vs. Fulbright, 180 Wn.2d 754, 328 P.3d 895 (2014)