When a homeowners association (HOA) or condominium association forecloses on a property in New Jersey for unpaid assessments, the question of whether surplus funds are generated depends on the type of foreclosure used and the sale proceeds. While mortgage foreclosures routinely generate surplus under N.J.S.A. 2A:50-37, the application of this framework to HOA and condo lien foreclosures involves additional complexities that warrant careful legal analysis.
How HOA and Condo Association Lien Foreclosures Work in NJ
In New Jersey, homeowners associations and condominium associations have the legal right to place a lien on a unit for unpaid common charges, assessments, and other fees authorized by the governing documents. The legal authority for condominium associations derives from the Condominium Act (N.J.S.A. 46:8B-1 et seq.) and the association’s governing documents (master deed, bylaws, and rules and regulations). For planned real estate developments, similar authority exists under the Planned Real Estate Development Full Disclosure Act.
When an owner fails to pay these assessments, the association can file a foreclosure action to enforce its lien. The foreclosure process for an HOA or condo association lien follows the general foreclosure procedures in New Jersey, culminating in a sheriff’s sale of the property.
Whether Surplus Is Generated from HOA/Condo Foreclosure Sales
Whether surplus funds are generated from an HOA or condo foreclosure sale depends on the sale price relative to the amount of the association’s lien and any other encumbrances on the property.
If the property sells at sheriff’s sale for more than the total amount of the association’s lien (including assessments, interest, late fees, attorney’s fees, and costs), surplus funds may exist. However, the distribution of any surplus is complicated by the presence of other liens on the property — most notably, any existing mortgage.
Important note: The legal framework governing surplus distribution from HOA/condo foreclosure sales has not been as extensively litigated as mortgage foreclosure surplus under N.J.S.A. 2A:50-37. While the general principles of surplus distribution should apply, the specific interaction between association liens, mortgage liens, and the rights of the former owner in this context requires careful legal analysis on a case-by-case basis. We advise homeowners to consult with an attorney to evaluate the specific facts of their situation rather than relying on general assumptions.
Interaction with Mortgage Liens — Priority Issues
One of the most critical issues in HOA/condo foreclosure surplus cases is the interplay between the association’s lien and any existing mortgage on the property. In New Jersey, a first mortgage typically has priority over an HOA or condo association lien, meaning that the mortgage must be satisfied before the former owner can claim any surplus.
However, under certain circumstances, a portion of the association’s lien — specifically, the last six months of unpaid common expense assessments — may have limited priority over a first mortgage under the Condominium Act (N.J.S.A. 46:8B-21). This limited super-lien priority applies only to condominium associations and only to the extent specified by statute.
When an HOA or condo association forecloses, the existence of a senior mortgage lien means that the mortgage holder has a claim against the sale proceeds (or the surplus) with priority over the former owner. The practical result is that surplus funds, if any, may be consumed entirely by the senior mortgage balance, leaving nothing for the former owner.
How to Claim Surplus from an HOA/Condo Foreclosure
If you believe surplus funds may exist from an HOA or condo association foreclosure of your property, the process for claiming those funds is similar to that for mortgage foreclosure surplus:
Confirm with the county sheriff that surplus funds were generated by the sale and verify the deposit with the Superior Court Trust Fund Unit in Trenton (609-421-6100).
File a motion under Court Rule 4:64-3 requesting distribution of the surplus funds.
The court will determine the priority of all competing claims — including the association’s lien, any mortgage, judgment liens, and the former owner’s interest — and order distribution accordingly.
Contact Friscia & Associates
If your property was subject to an HOA or condominium association foreclosure in New Jersey and you believe surplus funds may be owed to you, contact Friscia & Associates. We can analyze the lien priority, evaluate whether surplus exists after accounting for all encumbrances, and advise you on your options.
Call us today at (973) 500-8024.
This page is for informational purposes only and does not constitute legal advice.