A lien is a security interest, or encumbrance, over some type of property to secure the payment of a debt or some other obligation. Liens also have different priorities over one another and only when a lien is “perfected” will it be legally entitled to priority over subsequent liens. A creditor must normally “perfect” its lien by taking steps required by law to give other parties notice of the lien. As Lindsay Smith points out in her blog, Colorado requires that any party claiming an interest in real property record evidence of that interest in the real property records of the county in which the property is located.
Homeowner association liens in Colorado are statutory liens that attach to the real property and can include assessments, fees, charges, fines, interest, late fees, and attorneys’ fees and costs permitted by the association’s governing documents. The recording of the association’s declaration constitutes record notice and perfection of the association’s lien. In other words, the association’s lien begins to encumber a homeowner’s unit as soon as an assessment becomes due and the association does not have to record a notice of lien for each particular unit. While recording a separate lien is not required, doing so provides extra protection for the association.
If an association does record a lien against a unit, the association must ensure the contents of the lien are accurate and that it does not include any arguably false claims to avoid liability. Some areas to look out for are the accuracy of the owner of the property, the legal description of the property and the amount of the debt owed. In Colorado, a lien for unpaid assessments is extinguished unless proceedings to enforce the lien are instituted within six years after the full amount of assessments become due. Another way an association’s lien can be extinguished is via a foreclosure by the holder of the first deed of trust. While this type of foreclosure eliminates the association’s lien for unpaid assessments, the association is entitled to six months worth of assessments – aka the super lien – that have a priority superior to the first deed of trust, and therefore, cannot be eliminated as part of the foreclosure.
Association liens are a powerful tool to ensure payments are made and the community is adequately funded. Contact us if you have any questions about how to properly protect your association’s interests!