HOA Liens & Short Sales: Who Gets Paid, Who Gets Wiped Out, and Why Closings Fall Apart

You’ve got a short sale that’s finally moving. Buyer’s lined up. Title is ordered. Everyone’s feeling good.

Then the title company calls and drops the sentence nobody wants to hear:

“Hey… there’s an HOA lien. And their payoff is… complicated.”

Suddenly the closing date turns into a guessing game, the buyer starts getting cold feet, and the seller is asking (rightfully) why this random HOA bill is now threatening the entire deal.

HOA liens are one of the most common “surprise potholes” in short sales. Not because HOAs are evil (although some make a strong case), but because they are organized, persistent, and often legally prioritized in ways most people do not expect.

Here’s what’s really going on when an HOA is involved, and how to keep your short sale from dying on the closing table.

Why HOA liens are such a big short sale problem

In a standard sale, an HOA payoff is annoying but predictable. In a short sale, it can become a deal-breaker because:

- The lender is already agreeing to take less than what’s owed.

- Every extra dollar paid to someone else (HOA, taxes, junior liens) reduces what the lender receives.

- Title will not insure the transfer if the HOA lien is not addressed correctly.

This is where good short sale processing matters. A strong short sale coordinator (or short sale processor) anticipates the HOA issue early, gets clean numbers, and makes sure the lender sees the full picture before you are 48 hours from closing.

If you want a quick overview of how we prevent these surprise blowups, start with the way we handle title, liens, and payoffs in our short sale assistance process: helping deals close cleanly.

“Who gets paid?” The simple answer (and why it’s rarely simple)

In most short sales, the mortgage lender is the big dog. But HOA liens can have teeth, depending on:

- State law (some states give HOAs “super lien” priority for a portion of unpaid assessments)

- The HOA’s lien filing status and timing

- Whether there are multiple HOAs (master association + sub association)

- Whether the payoff includes legal fees, interest, special assessments, or collections costs

The practical reality: the HOA often expects full payment, and the lender often expects the HOA to accept less. That gap is where deals stall.

This is why it helps to negotiate a short sale with the HOA issue in mind from the beginning, not as a late-stage surprise. If the lender’s approval letter comes back without a clear plan for HOA payoff treatment, you are setting yourself up for a last-minute scramble.

“Who gets wiped out?” Not always who you think

People assume: “If the bank is taking a loss, doesn’t everyone else just get wiped out too?”

Not automatically.

- If the HOA lien is senior or has special priority under state law, it may need to be paid in whole or in part.

- If the HOA lien is junior, it can still block closing if it is not released properly.

- If the lender forecloses later, the HOA may still pursue the homeowner for remaining balances (depending on state law and the HOA’s governing documents).

In other words: even if an HOA might eventually be wiped out in some foreclosure scenarios, that doesn’t help you today if title needs a release before closing.

This is where a short sale specialist mindset helps: do not argue about what “should” happen. Focus on what must happen to get the deed insured and recorded without drama.

The 5 ways HOA liens derail closings (and how to prevent each)

1) The payoff is not “just the dues”

HOA payoffs often include:

- Past-due assessments

- Late fees and interest

- Collections charges

- Attorney fees

- Special assessments

- Transfer fees or capital contributions (depending on HOA)

Fix: order the payoff early and request an itemized breakdown. If you wait until the week of closing, you are basically begging for a delay.

2) The payoff expires before you close

Some HOAs issue payoffs that expire in 10–30 days. Short sale approvals also expire. The timing mismatch is a classic mess.

Fix: keep payoff expiration dates on the same tracking list as your lender approval deadlines. This is exactly the kind of “small detail” that a dedicated short sale coordinator catches before it becomes a crisis.

3) There are two HOAs and nobody realized it

Master association plus neighborhood HOA is more common than most agents realize. Two payoffs. Two releases. Twice the fun.

Fix: confirm HOA structure during title order, not during final closing prep.

4) The lender approval letter is missing HOA language

Some approvals specify what can be paid (taxes, HOA, junior lien settlement amounts). If HOA is not addressed, the lender may refuse to allow it on the settlement statement.

Fix: before you accept “approval,” review the terms like you are trying to break the deal (because reality will). If you want to see how we structure the approval review and closing checklist, that’s baked into the way we support agents and title teams here: helping real estate agents close short sales faster.

5) Title will not insure without an HOA release

Even if the lender is “fine” with the HOA getting little or nothing, title still needs a clean release and insurable chain.

Fix: coordinate HOA release requirements early. Sometimes the HOA will accept reduced payoff in exchange for immediate payment and a written release. Sometimes they will not. Either way, you want this known before buyer financing, appraisal, and scheduling are already in motion.

What agents should tell sellers (so nobody freaks out later)

Sellers hear “HOA lien” and assume it means they are being sued or going to jail. Keep it simple:

- The HOA has a legal claim for unpaid assessments.

- We have to address it for the sale to close.

- It might be paid in full, partially, or negotiated, depending on the numbers and state rules.

- The goal is to get a clean release so the buyer can close and title can insure.

If you’re dealing with a seller who wants to move quickly, the fastest path is usually to get the short sale started correctly from day one, including HOA and title coordination. If you need a clean intake path for a new file, you can start the short sale process here.

The bottom line

HOA liens are not rare, and they are not automatically fatal. They’re just a reminder that short sales are not only about “getting the bank to say yes.”

A short sale closes when every party who can block title is either paid appropriately or releases their claim properly.

Handle the HOA early, get clean numbers, and make sure the approval terms match reality. That is how you avoid the dreaded “We were supposed to close tomorrow…” phone call.