Disclaimer: The following discussion is provided for informational and educational purposes only and does not constitute legal advice. Laws and regulations change over time, and their application may vary based on specific facts and circumstances. If you require legal advice, please consult a qualified attorney familiar with Philippine real estate and homeowners’ association laws.

Introduction

Homeowners’ association (HOA) dues are regular or special fees collected by an association from the owners of properties within a subdivision or similar development to cover expenses such as security, utilities in common areas, maintenance, and other community-related services. In the Philippines, these associations and their dues are governed primarily by Republic Act (R.A.) No. 9904, also known as the “Magna Carta for Homeowners and Homeowners’ Associations,” along with its Implementing Rules and Regulations (IRR) and related guidelines from the Department of Human Settlements and Urban Development (formerly HLURB).

One complicated area arises when a property is foreclosed and subsequently transferred to a new owner (e.g., a bank or a winning bidder at a foreclosure sale). The question is: Who is liable for unpaid HOA dues—especially those that accumulated prior to the foreclosure? This article provides an overview of relevant laws, common practices, and considerations on the liability for HOA dues in the Philippines when a property undergoes foreclosure.

Legal Framework

1. Republic Act No. 9904 (Magna Carta for Homeowners and Homeowners’ Associations)

Section 20 (Duties and Responsibilities of Homeowners):
Requires homeowners to pay their association dues, charges, and other fees, as approved by the homeowners’ association in accordance with its governing documents.
Section 21 (Delinquency in Payment of Association Dues and Fees):
Provides that HOAs may take steps to enforce collection of unpaid dues in accordance with their bylaws and relevant laws. Under certain bylaws and contractual provisions (e.g., Master Deeds, Deeds of Restrictions, or the HOA’s Articles of Incorporation and By-Laws), unpaid dues may constitute a lien on the property.
Implementing Rules and Regulations (IRR):
While R.A. 9904 itself does not categorically define who shoulders past-due obligations post-foreclosure, the IRR generally reiterates the HOA’s authority to impose and collect fees, as well as place liens on properties for nonpayment.

2. Civil Code of the Philippines

Some principles in the Civil Code (e.g., Articles 428, 429, on rights of ownership, or Articles 2124, 2126 on real estate mortgages) may also come into play, particularly on whether the obligation for unpaid dues “runs with the land” or is purely personal to the previous owner.
In practice, many subdivision or condominium Master Deeds (for vertical developments) or Deeds of Restrictions (for subdivisions) incorporate provisions stating that HOA dues attach to the property itself and remain an obligation to be settled by whomever is the owner, subject to certain conditions.

3. Master Deed, Deed of Restrictions, or HOA By-Laws

Subdivision homeowners’ associations typically set forth, in their governing documents, that unpaid HOA dues may constitute a real lien on the property. This is crucial in determining liability since it clarifies the association’s ability to pursue collection from the current owner, even if the debts accrued during a prior ownership.

Common Scenarios and Practices

1. Foreclosure by a Bank or Lending Institution

When a borrower defaults on a housing loan, the mortgaged property may be foreclosed and sold at a public auction. Often:

Bank-Acquired Assets (Real or “ROPOA”)
- If the bank itself is the highest bidder and acquires the foreclosed property, the bank steps into the shoes of the owner. In many instances, HOAs will demand payment of all outstanding dues (including dues that accrued prior to foreclosure).
- Whether the bank is automatically liable for pre-foreclosure arrears depends on:
  - The HOA’s governing documents (Deed of Restrictions, by-laws) providing that unpaid dues attach to the property.
  - Whether the bank may, in practice, negotiate with the HOA to waive or reduce prior arrears.
Third-Party Winning Bidder
- If an individual or another entity is the highest bidder at the auction (instead of the bank), that party becomes the new registered owner upon the expiration of the redemption period (if applicable).
- The same principle usually applies: if the HOA’s rules or Master Deed state that unpaid association dues are a lien on the property, then the new owner may be compelled to pay these arrears to remove encumbrances and ensure a clear title.

2. Judicial or Extrajudicial Foreclosure

Philippine law recognizes extrajudicial foreclosures (under Act No. 3135) and judicial foreclosures (under Rule 68 of the Rules of Court). The difference is procedural, but the outcome regarding ownership transfer is similar once the foreclosure sale is completed and the redemption period (if any) has lapsed.

Regardless of the mode of foreclosure, if the HOA’s governing documents treat unpaid dues as a continuing lien on the property, the new owner typically is the entity that must settle these dues to prevent disputes, penalties, or difficulty in transferring title or enjoying common amenities.

3. Negotiation or Settlement of Past Dues

Although the principle is that liabilities may run with the property if so stated in the HOA’s rules, in actual practice banks and third-party buyers often try to negotiate with the HOA:

Bank might argue that the unpaid dues are the personal obligation of the previous owner and demand that the association remove the lien or reduce the arrears so the property can be sold more easily.
Third-Party Buyer might attempt to secure a price adjustment in the foreclosure sale (or private sale after the foreclosure) to account for the cost of unpaid HOA dues.

Ultimately, whether or not the new owner pays the past dues is typically subject to the lien provisions in the HOA’s governing documents. Some HOAs strictly enforce the rule that “no new owner can occupy or use the common facilities unless all arrears (including prior owners’ arrears) are settled.” Others adopt a more lenient stance or arrange partial payments to encourage new owners to quickly integrate into the community.

Key Points to Consider

HOA Governing Documents Control
- Check the specific provisions in the Master Deed, Deed of Restrictions, or HOA by-laws. These legal documents often explicitly indicate that unpaid dues are a lien on the property. If such provisions exist, they typically form the legal basis for requiring new owners to clear past arrears.
Buyer’s Due Diligence
- Prior to bidding at a foreclosure auction (or buying any property), potential buyers should:
  - Inquire directly with the HOA about any unpaid dues.
  - Factor these arrears into their maximum bid or purchase price.
- If you are the buyer, you have a right to ask the selling party or the foreclosing bank for a statement of account reflecting all unpaid dues.
Possible Remedies for New Owners
- Even if the new owner eventually pays the previous owner’s arrears, the new owner might have the option to seek reimbursement or indemnification from the borrower/former owner. However, this can be legally challenging or unfeasible if the previous owner is insolvent or cannot be located.
Scope and Limitation of Liens
- Typically, liens for unpaid HOA dues do not supersede a valid mortgage lien (i.e., the bank’s security interest). Thus, in a foreclosure sale by the bank, the bank’s lien is the reason the property is sold. But once the property has passed to a new owner, the HOA’s claim for unpaid dues (if recognized under the HOA’s documents) can remain enforceable against that new owner or the property itself.
Practical Outcome
- Most associations require that all past HOA dues are settled before issuing the necessary clearances or certificates, e.g., a “Certificate of No Delinquency” or “Association Clearance,” which is often needed for the transfer of title. This clearance is also important if the new owner wants to fully enjoy the subdivision’s common facilities or avoid legal action from the HOA.

Illustrative Flow of Events

Default on Mortgage: Homeowner fails to pay monthly amortizations.
Foreclosure Proceedings: The lender institutes foreclosure (judicial or extrajudicial).
Auction Sale: Property is auctioned. Either the bank or a third party is the highest bidder.
Redemption Period (if applicable): If no redemption is made (or if none is applicable), the highest bidder consolidates title.
Demand for HOA Dues:
- The HOA, if it has a continuing lien provision, sends a demand letter or requires payment of arrears before granting clearances or amenities to the new owner.
Negotiation:
- New owner/bank and HOA may negotiate. If the lien clause is clear and enforceable, the new owner often ends up shouldering at least a portion, if not all, of unpaid dues accrued by the previous owner.
Settlement/Payment:
- The new owner pays, or arranges a settlement plan, to avoid further disputes and to ensure the peaceful use of the property.

Practical Tips

For Associations
- Maintain clear by-laws and explicit lien provisions for unpaid dues.
- Keep accurate and updated records of delinquent accounts.
- Provide prompt statements of account to potential buyers or banks when asked.
For Lenders/Foreclosing Banks
- Factor in HOA arrears when deciding foreclosure reserve prices and subsequent sale prices.
- Aim to clarify the status of unpaid dues early in the process to avoid surprises.
For Potential Buyers (Foreclosure Auctions)
- Always conduct due diligence on the property’s status, including checking with the HOA on unpaid dues.
- Budget for possible settlement of unpaid dues.
- Negotiate or incorporate these dues into the final purchase consideration.
For Homeowners Facing Foreclosure
- Keep communication lines open with both the bank and the HOA.
- If possible, settle or partially pay HOA dues to avoid ballooning arrears that could affect your property’s salability or hamper future negotiations with potential buyers or the bank.

Conclusion

In the Philippine context, liability for HOA dues on a foreclosed property generally hinges on the HOA’s governing documents (Master Deed, Deed of Restrictions, By-Laws) and R.A. 9904’s provisions on association fees and liens. In many cases, unpaid HOA dues “run with the land,” meaning that once the foreclosure process is complete and a new owner steps in—whether a bank or another third party—that new owner can be held liable for any existing arrears, barring any contrary stipulations or negotiated arrangements.

Given the complexities and the variations in how different HOAs draft their by-laws, potential buyers and banks alike should perform thorough due diligence, request updated statements from the association, and negotiate the settlement of HOA dues as needed. The best protection for any party is to review all relevant documents and, where necessary, obtain legal advice to address specific circumstances.

Disclaimer (reiterated): This article provides a general understanding of the topic in the Philippines and does not substitute for professional legal counsel. For matters involving specific disputes, amounts, or legal proceedings, consult a qualified Philippine attorney.