August 1, 2106
by Pamela King
Sirote & Permutt, P.C.
USFN Member (Alabama)
On May 26, 2015 the Alabama Legislature passed the Alabama Homeowners’ Association Act (Act), which is codified in the Alabama Code §§ 35-20-1 through 14. This is the first Alabama law specifically addressing homeowners’ associations (HOAs). The law applies to HOAs created on or after January 1, 2016. HOAs existing prior to January 1, 2016 may elect to be governed by the Act.
The Act requires an HOA to be organized as a nonprofit corporation, under the Alabama Nonprofit Corporation Act. As a result, HOAs are required to file association documents with the secretary of state’s office, and the secretary of state must maintain the documents in a publicly searchable database. In return, the HOAs are provided statutory basis for adopting and enforcing rules regarding use of common areas, tenant-related issues, and assessments and liens.
The Act specifies the procedures for filing and enforcing assessment liens. Most notable is the lien priority information. The Act does not create a super-lien priority for HOA assessment liens. The statute provides that the lien has priority over subsequent liens, except as to state and county ad valorem taxes, municipal improvement assessments, UCC fixture filings, mortgages, and deeds of trust securing indebtedness.
Procedurally, the applicable HOAs shall have liens for unpaid assessments that arise on and from the date the assessment is due. Written notice of the assessment and lien must be given to the owner, by personal delivery or first-class mail, and the association must record a verified statement of lien within twelve months from the date that the assessment becomes due. The lien may be enforced or foreclosed as set forth in the declaration, the governing documents, or Section 12 of the Act. The HOA may bring an action in court to enforce a lien, and that court may enforce the lien by a sale of the property. Notice of the sale shall be by publication once a week for three consecutive weeks in the counties in which the property is located.
Until now, Alabama law regarding HOAs has been very uncertain. Many HOAs have attempted to create their own “super-priority” status in their individual declarations. These HOAs aggressively pursue all HOA dues after the foreclosure regardless of assessment date. If the dues are not paid after foreclosure, the HOAs will try to collect the delinquent dues from the REO purchaser — which often brings the REO purchaser back to the title underwriter or the closing attorney for resolution. As a result, many title underwriters in Alabama require HOA dues to be paid at REO to avoid the aforementioned scenario. Practically speaking, paying the delinquent HOA dues at the REO point is often times more cost-effective than incurring legal fees to challenge the HOA’s position.
The effects of the Act may take some time to settle in. The Act is not retroactive, and only governs HOAs created after January 1, 2016, and existing HOAs that elect to be governed by the Act. Therefore, it is likely that many HOAs will still assert their contractual “super-priority.” Existing HOAs may elect to maintain the status quo until such time as newly created HOAs begin to exhibit the benefits of the Act. Moving forward, the industry should benefit from the statutory guidance as to the super-priority status, as well as the availability of current and searchable HOA records.
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Summer USFN Report
Note for consideration of the USFN Award of Excellence: This article is not a "Feature."