Michigan HOA Foreclosure Law: When and How Associations Can Foreclose on Unpaid Dues

Michigan HOA Foreclosure Law: When and How Associations Can Foreclose on Unpaid Dues

Michigan does not have a comprehensive state statute that grants homeowner associations automatic priority lien status or prescribes a uniform foreclosure process for unpaid assessments. Your association's ability to foreclose on unpaid dues flows primarily from your declaration of covenants and the Michigan Condominium Act for condominium associations. Because Michigan law does not provide HOAs with super priority status over first mortgage lenders, your board must navigate a judicial foreclosure process and understand how your lien ranks against other creditors.

The Michigan Attorney General's office oversees certain aspects of HOA and condominium compliance, particularly regarding financial transparency and governance. When disputes over foreclosure arise, Michigan circuit courts have jurisdiction to enforce association liens and determine priority among creditors.

How Michigan Law Treats HOA Liens

Your association creates a lien on a unit or lot when an owner fails to pay assessments. For condominium associations, the Michigan Condominium Act provides that assessments constitute a lien on the unit, but this lien does not automatically take priority over a first mortgage recorded before the assessment became due. Your lien will typically rank behind the first mortgage and property taxes.

For non condominium homeowner associations, your declaration of covenants must explicitly grant the association the power to file a lien for unpaid assessments. If your declaration is silent, you may lack a statutory mechanism to foreclose. Review your governing documents to confirm that they authorize lien filing and foreclosure.

Michigan does not follow the super priority lien model that some western states have adopted. In states like Nevada or Colorado, an HOA lien for a limited amount of unpaid assessments can take priority over a first mortgage. Michigan law does not grant this advantage. When your association forecloses on a lien, the first mortgage holder retains its senior position, and the association's recovery is limited to whatever equity remains after satisfying the mortgage and tax liens.

The Judicial Foreclosure Requirement

Michigan requires judicial foreclosure for HOA liens. Your association cannot conduct a nonjudicial foreclosure sale the way a mortgage lender can under a power of sale clause. You must file a lawsuit in the circuit court for the county where the property is located, obtain a judgment, and request a court ordered sale.

The judicial process typically takes six to twelve months, depending on court dockets and whether the owner contests the case. Your association will incur legal fees, court costs, and potentially property maintenance expenses during this period. You must weigh these costs against the likelihood of recovering the full amount owed.

Before filing a foreclosure lawsuit, Michigan law and good governance practice require that you send the owner a notice of the delinquency and an opportunity to cure. Your governing documents likely specify the notice period, which is commonly 30 to 60 days. If the owner does not pay within that window, your attorney can file a complaint for foreclosure.

The court will schedule a hearing. If the owner does not appear or does not present a valid defense, the court will enter a default judgment in favor of the association. The judgment will include the unpaid assessments, interest, attorney fees (if your governing documents authorize them), and court costs. The court will then order a sheriff's sale of the property.

Priority Among Creditors

When the property sells at a sheriff's sale, the proceeds are distributed according to Michigan's creditor priority rules. Property taxes and governmental liens typically take first priority. A recorded first mortgage takes the next position. Your HOA lien ranks after these senior claims.

If the sale proceeds are insufficient to pay all creditors, your association may receive only a partial payment or nothing at all. This outcome is common when the property is underwater, meaning the mortgage balance exceeds the property's market value.

A concrete example: the Woodbridge Estates Homeowners Association in Grand Rapids filed a foreclosure action in 2019 against a unit owner who owed $8,400 in unpaid assessments and late fees. The property had a first mortgage balance of $142,000 and a market value of approximately $135,000. After the sheriff's sale, the proceeds went entirely to the mortgage lender and property tax claims. The association recovered zero dollars and paid $6,200 in legal fees and court costs.

This case illustrates the financial risk Michigan associations face when pursuing foreclosure. You must conduct a title search and property valuation before filing to determine whether any equity exists to satisfy your lien.

When Foreclosure Makes Sense

Foreclosure is a tool of last resort. Your board should consider foreclosure only when the delinquency is substantial, typically exceeding $5,000, and when a title search confirms that equity exists beyond the first mortgage and tax liens.

Before foreclosure, exhaust other collection methods. Send demand letters, offer payment plans, charge late fees and interest as allowed by your governing documents, and report the debt to credit bureaus if your covenants permit. Many owners will pay to avoid damage to their credit.

If the owner continues to ignore payment demands and the debt grows, consult your attorney for your specific situation. An attorney can review the title, estimate your recovery, and advise whether foreclosure is economically justified.

In some cases, your association may choose to wait for the mortgage lender to foreclose. When a lender forecloses, Michigan law allows your association to recover up to six months of unpaid assessments that accrued before the foreclosure sale from the new owner or the lender if the lender takes title. This provision gives you a limited recovery opportunity without bearing the cost of your own foreclosure action.

Special Considerations for Condominium Associations

The Michigan Condominium Act provides condominium associations with slightly more defined authority than non condominium HOAs. Under the Act, a condominium association's lien for unpaid assessments attaches to the co owner's unit automatically when the assessment becomes due. The association does not need to record a separate lien document to create the lien, although recording a notice of lien is advisable to give public notice to potential buyers and lenders.

The Act also permits the association to recover reasonable attorney fees and costs if the governing documents authorize them. Review your condominium bylaws to confirm this provision.

Despite these advantages, condominium associations still face the same priority limitations. Your lien does not leap ahead of a first mortgage, and you must follow the judicial foreclosure process.

Michigan Court Authority and Recent Trends

Michigan circuit courts have broad authority to interpret association covenants and determine the validity of liens. In disputes over assessment amounts or foreclosure procedures, courts will examine whether the association followed its governing documents and provided proper notice to the owner.

Michigan courts have consistently held that associations must strictly comply with notice requirements before accelerating a debt or filing foreclosure. A 2018 case from Oakland County Circuit Court dismissed an association's foreclosure complaint because the association sent the required notice to an outdated address and did not verify that the owner received it. The court ruled that substantial compliance was insufficient and that the association must prove actual notice.

This ruling underscores the importance of maintaining current contact information for all owners and using certified mail with return receipt for all legal notices.

What You Should Do Now

Review your association's declaration and bylaws to confirm that they grant the association the power to file liens and foreclose on unpaid assessments. If your documents are silent or ambiguous, consider proposing an amendment to clarify this authority.

Establish a written collections policy that outlines your procedures for handling delinquent accounts. The policy should specify when late fees apply, when the association will send a demand letter, when the association will file a lien, and under what circumstances the board will authorize foreclosure. Share this policy with all owners so they understand the consequences of non payment.

Conduct a title search before pursuing foreclosure to determine whether sufficient equity exists to justify the cost. Obtain a current property valuation and compare it to the outstanding mortgage balance and tax liens. If the property is underwater, foreclosure is unlikely to result in recovery.

Consult your attorney for your specific situation before filing any foreclosure action. An attorney can verify that your governing documents authorize foreclosure, confirm that you have provided proper notice, and guide you through the circuit court process.

Manorway's AI assisted platform helps you track delinquent accounts, schedule collection notices, and maintain a complete record of communications with owners. When your board uses a centralized system to manage assessments and payment status, you reduce the risk of missing deadlines or sending notices to incorrect addresses. Manorway can store your collections policy, generate demand letters, and create an audit trail that protects the board in disputes.

Alternatives to Foreclosure

Because foreclosure in Michigan is costly and uncertain, your board should explore alternatives. Offer payment plans to owners who demonstrate financial hardship. A structured plan that spreads the debt over six to twelve months is more likely to result in full recovery than a foreclosure that yields nothing.

Consider filing a small claims lawsuit for amounts under $6,500. Michigan small claims courts provide a faster and less expensive avenue for obtaining a judgment. Once you obtain a judgment, you can garnish wages or bank accounts without foreclosing on the property.

For larger debts, a civil lawsuit for money damages may be more practical than foreclosure. You can obtain a judgment and place a lien on the property without the expense of a sheriff's sale. The lien will remain on the property until the owner sells or refinances, at which point the title company will require payment to clear the lien.

Key Takeaways for Michigan HOA Boards

Michigan law does not grant HOAs super priority lien status. Your lien ranks behind first mortgages and tax liens, which limits your recovery in foreclosure. Judicial foreclosure is your only option, and the process takes six to twelve months and costs thousands in legal fees.

Before pursuing foreclosure, conduct a title search and property valuation to confirm that equity exists. Exhaust other collection methods first. Maintain accurate owner contact information and send all legal notices by certified mail.

Your governing documents control your foreclosure authority. If your declaration does not explicitly grant the association the power to foreclose, you may lack a statutory mechanism to do so. Review your documents now and consider amendments if necessary.

Manorway can help you manage delinquent accounts, track collection timelines, and document your compliance with notice requirements. When your board uses an AI assisted platform to organize assessments and communications, you create a defensible record that supports your collection efforts and reduces legal risk.