In Arizona, homeowner’s associations are entitled to foreclose on Owners who fail to pay the assessments owed to the Association. For both condominiums and planned communities in Arizona, an association has a lien against a Unit or property for assessments levied against the Unit or property (plus late fees and reasonable collections fees). An association can foreclose on its assessment lien (which can also include special assessments or amounts spent by the Association as self-help) if the Owner has not paid the amounts owed for one year, or if the unpaid amounts total $1,200 or more, whichever occurs first. See A.R.S. Section 33-1807 (planned communities) and A.R.S. Section 33-1256 (condominiums).

What Encumbrances Have Priority Over the Association’s Assessment Lien?

According to Arizona law, there are three types of interests and encumbrances that have priority over an Association’s assessment lien. The first is any lien or encumbrance that was recorded before the Association’s Declaration (CC&Rs) were recorded. The second is the First Deed of Trust, or mortgage, recorded against the property. The third are liens for real estate taxes (and other governmental assessments) against the property. See A.R.S. Section 33-1807(B) (planned communities) and A.R.S. Section 33-1256(B)(condominiums). This article explains tax liens and their affect on association’s liens in more detail.

Per the statute, the beneficiary of a mortgage against the property (usually a bank) and tax lienholders have priority over the Association’s lien, and will not be extinguished when the Association forecloses on its lien. Any other liens or encumbrances recorded against the property (such as judgments recorded against the individual owner, second Deeds of Trust, etc.) are junior to the Association’s lien, and will be “wiped out,” or extinguished, when the Association forecloses its assessment lien (if the junior lien holders are named in the foreclosure lawsuit).  

Tax Liens After an Association Forecloses

As mentioned above, a tax lien has priority over the association’s assessment lien. This means that if an association obtains a foreclosure judgment against a delinquent owner, the property is still subject to the tax lien (it is not wie. After a Sheriff’s Sale, the new owner can either pay the delinquent taxes amounts to remove the tax lien, or not pay the amounts which leaves the property open to the possibility that the holder of the tax lien will foreclose. The same is true if the property reverts back to the association after the Sheriff’s Sale.

Can a Tax Lienholder Foreclose, and What Affect Does that Have on the Association’s Lien?

Because the Association’s assessment lien is junior to tax liens recorded against the property, if a tax lienholder forecloses on its lien, the Association’s assessment lien is extinguished.

Overview of the Delinquent Tax System

A tax levied on real property is a tax lien on the assessed property (A.R.S. Section 42-17153A). If an Owner fails to pay the property taxes against his property for a given year, the County Treasurer holds an auction, offering bidders a chance to obtain a lien for the delinquent amounts owed. This tax lien auction is held in February each year, where the prior year’s taxes are available. The bidders bid on interest rates (which will be included if the Owner or other party redeems the amounts owed), and the lowest interest rate bid wins the lien. See A.R.S. Section 42 18109.

The successful bidder may bring a foreclosure action to foreclose on his or her lien no earlier than three years after the sale of the tax lien (but not more than ten years after the lien is sold). For example, if XYZ, LLC is the successful bidder in 2016 for the 2015 taxes owed on Property A, XYZ, LLC cannot foreclose on its lien until 2019, and cannot foreclose after 2026.

What can an Association do?

Typically, if an association is named in a tax lien foreclosure lawsuit, the Association has two options: (1) disclaim its interest in the property (and if the tax lienholder obtains a final judgment, the association’s assessment lien is extinguished), or (2) pay off, or “redeem,” the amount of the tax lien (which includes the amount owed in delinquent taxes for that particular year, plus interest, and maybe even attorneys’ fees and costs). If anyone (including the association) redeems the taxes for that particular lien, the lien can no longer be foreclosed (meaning the association’s assessment lien remains on the property). The association (or its agent) should send any tax lien foreclosure complaint in which the association is named to association’s counsel to review the best options.

Related: Amending Your CC&Rs Legally

Contact an Arizona HOA Lawyer for Further Help

Contact us at the information provide below or check out our proprietary AZ HOA Statutes resource page. Goodman Law is a group of HOA attorneys, focused on meeting the legal needs of HOAs. We help in creating and implementing HOA policy and responding to homeowner concerns. We have numerous locations Valley-wide. So whether you need HOA Counsel in Glendale, Mesa, Prescott, or in Phoenix, we can help! Contact us today to discuss any legal challenge your HOA is facing.