When a homeowner falls behind on association dues (or “assessments”), the property may eventually go into foreclosure. Many HOA and condominium boards assume the Association has lost any chance of collecting the unpaid assessments. After all, if the bank forecloses, what is left for the Association?
Sometimes, more than you might think.
Under North Carolina law, a foreclosure sale can result in “surplus funds,” which means money remaining after required debts and expenses are paid. Depending on the circumstances, a homeowners or condominium association may be entitled to some or all of those funds.
What Are Foreclosure Surplus Funds?
Suppose a home sells at foreclosure for $300,000, but the mortgage balance, foreclosure costs, and other required payments total only $250,000. That could leave $50,000 in surplus funds.
North Carolina law explains how to distribute these funds and resolve competing claims. When it is unclear who is entitled to the money, the person handling the foreclosure can deposit the surplus with the Clerk of Court.
Depending on the Association’s assessment lien and its priority, some of that money may be available to pay unpaid assessments. North Carolina has specific laws governing HOA and condominium assessment liens.
Why Should Associations Pay Attention?
Foreclosure does not always mean an Association has lost its opportunity to collect unpaid assessments. In some cases, an Association’s lien may attach to the surplus proceeds even though the foreclosure has wiped out the lien against the property.
In fact, in a 2026 NC Court of Appeals decision, Forest Ridge Townhomes Corp. of Greensboro v. Heag Pain Management Center, the Court upheld an award of more than $26,000 in foreclosure surplus funds to a homeowners association for unpaid assessments and attorneys’ fees.
NOTE: An association does not automatically receive surplus funds just because assessments are owed. The Association may need to file a legal proceeding to establish its right to the funds.
Pursuing surplus funds may help an Association recover assessments it might otherwise write off. That benefits the entire community. After all, unpaid assessments affect the Association’s finances and other owners. (See When Being Too Nice About HOA and Condominium Assessments Hurts Everyone and Why Are HOA and Condo Assessments Going Up?)
What Should Boards and Community Managers Do?
If a property in your community has been foreclosed upon, particularly where significant assessments remain unpaid, don’t assume the account is uncollectible.
Instead, consider asking an attorney to review the foreclosure records. Even older foreclosures may deserve a second look, depending on the circumstances.
At Law Firm Carolinas, our community association attorneys assist associations with identifying and pursuing foreclosure surplus funds. Attorneys Fred Hulse and Jonathon Woodruff have particular experience with these matters and would be happy to speak with community managers or association board members about possible recovery.
Takeaway: Before writing off unpaid assessments following a foreclosure, make sure there isn’t money available that the Association may be entitled to recover.