That's right, the foreclosure does not necessarily wipe out a lien for unpaid HOA dues. I didn't know that, and apparently, neither did Bank of America.
Here's the story. I represent a buyer for a house in Melody Ranch, Jackson Hole, WY. The seller is Bank of America, who acquired the house via foreclosure a few months ago. The previous homeowner quit paying their homeowner's association (HOA) dues months before the foreclosure, and the HOA placed a lien on the property for the unpaid dues. After the lien was filed, the bank foreclosed.
My buyer put the property under contract, and the title company prepared the closing statement. The title commitment showed the HOA lien as an encumbrance, and the closing statement showed that the seller would have to pay the amount of the lien, just under $1000. Bank of America (Seller) protested the charge, saying that their foreclosure should have wiped out the HOA lien, since the Bank of America mortgage was a first lien, and predated the HOA lien. Seemed reasonable to me.
BUT, buried in the Covenants, Conditions, and Restrictions (CCRs) for Melody Ranch was a paragraph that asserts that any lien placed by the HOA will be a superior lien to any mortgage lien placed on the property AFTER THE DATE OF THE CCRs. Who knew you could do that?
So our closing was supposed to be last Friday, and the lawyers have been arguing about this for a week. The attorney for the homeowner's association is very confident the lien must be paid, and has been down this road before, so I believe him.
It makes me wonder how many lenders read the CCRs before they make a loan, and if they would agree to make that loan if they knew their loan would be subordinate to the HOA dues.