Should our HOA accept a deed in lieu from an owner who can't pay dues?

By OurHOA · General information · Revised November 9, 2026

Should an HOA board accept a deed in lieu from an owner behind on dues? How to run the numbers, check title, paper the deal, and avoid the traps.

Part of the HOA board handbook: treasurer and money.

The short answer

Usually no. An owner who offers to sign the house over sounds like a clean end to a collection file, but a deed only moves what the owner has. Every mortgage, tax bill and judgment lien stays on the property. If a home has real equity, the owner should sell it and pay you at closing. If it has none, you would be buying a debt. A deed works in a narrow set of cases: a vacant lot with no mortgage, or an abandoned home with little debt against it and a value close to what the association is owed. The law generally allows it. C.R.S. 38-33.3-316(6) says the assessment lien section does not prohibit taking a deed in lieu of foreclosure, and Fla. 720.3085(2)(b) mentions associations that acquire title this way. Check your declaration for limits. Rules vary by state and by governing documents, and this guide is education, not legal advice. Have the association's attorney draft and review the deal.

Run the numbers first

Before anyone discusses the owner's situation, the treasurer fills in one line: value, minus every lien that stays, minus back taxes, minus selling costs, minus the cost to carry the property until it sells. Compare the result with the debt. These examples assume 7 percent selling costs on a house and $1,500 a month to carry it for six months. - House with equity. Value $310,000, mortgage $180,000, back taxes $6,000, selling costs $21,700, carrying costs $9,000. That leaves $93,300 against a $14,000 debt, so the owner would give up about $79,300. Decline, and tell the owner to list the house. - Underwater house. Value $240,000, mortgage $235,000, selling costs $16,800, carrying costs $9,000. That comes to negative $20,800. Decline. - Vacant lot. Value $18,000, no mortgage, back taxes $1,200, selling costs $1,800, a year of mowing $1,200. That leaves $13,800 against a $9,500 debt. This one deserves a closer look, perhaps with a small cash payment to the owner at signing. Get the value from an appraisal or a broker's written opinion, not from a director who knows the street. Then check what a lender's foreclosure would pay you. Fla. 720.3085(2)(c) sets a first mortgagee's liability for past assessments at the lesser of 12 months or 1 percent of the original mortgage debt, and C.R.S. 38-33.3-316(2)(b) gives the association priority over the first mortgage for six months of budgeted assessments. Ask the attorney what you give up by releasing the debt.

What the deed will not clear

Order a title report before the board votes. Foreclosing a senior lien can cut off junior liens. A deed does not. One article written for lenders puts it flatly: junior-lien claims "are not extinguished by a deed-in-lieu." Look for second mortgages, judgment liens, tax liens, code liens and unpaid property taxes, and price each one. If nobody keeps paying it, the lender can foreclose and the association loses the house along with the debt it released. Taking title may also let the lender call the loan. Federal law, 12 U.S.C. 1701j-3(d), lists transfers that cannot trigger a due-on-sale clause on small residential loans, such as a transfer to a spouse or child. A transfer to an association is not on the list. Ask the attorney about merger. When a lienholder takes title, its lien can merge into ownership and lose its place ahead of later liens. Lenders use an anti-merger clause for this, and a California appeals court enforced one in Decon Group v. Prudential Mortgage Capital. The result for an assessment lien depends on your state and your lien's priority. Also ask a title company, in writing, whether it will insure the association and a later buyer from the association.

State rules to check

Texas. Article XVI, section 50(b) of the Texas Constitution bars selling a homestead without the consent of each owner and each owner's spouse, and Family Code 5.001 requires the other spouse to join. Section 50(c) voids "pretended sales of the homestead involving any condition of defeasance," so never pair the deed with a promise to give the house back once the debt is paid. The 180-day redemption right in Property Code 209.011 is written for foreclosure sales. Ask the attorney to confirm a voluntary deed does not start it. Florida. Article X, section 4(c) of the Florida Constitution requires a married homestead owner's spouse to join. Documentary stamp tax is the surprise. Under 201.02(1)(a) the tax is generally 70 cents per $100 of consideration, and consideration includes a discharged obligation and the amount of any mortgage, assumed or not. Rule 12B-4.013(2) applies this to a borrower's deed to a mortgage holder. Treated the same way, a $14,000 debt plus a $180,000 mortgage means $1,358 in tax, which the attorney should confirm. If a foreclosure notice is on record and the owner keeps a lease or buy-back option, section 501.1377 may treat the deal as a foreclosure-rescue transaction. Its deed in lieu exclusion refers to a foreclosing lender, so do not assume it covers you. Colorado. The Foreclosure Protection Act can treat someone who takes title to an owner-occupied, mortgaged home in foreclosure as an equity purchaser. The deed in lieu exception in C.R.S. 6-1-1103(2)(b) covers holders of consensual liens, and an assessment lien may not fit. Where the act applies, 6-1-1113 lets the owner cancel until midnight of the third business day after signing, and 6-1-1117 bars accepting a deed until then. Credit counseling, mediation and notice rights in 38-33.3-316(10.3) to (10.8) protect owners from foreclosure, so do not use a deed to walk around them. Section 316(12) bars directors, manager and law firm employees and their families from buying a foreclosed unit. Apply the same bar here.

The risk that outlasts the closing

An insolvent owner who gives up property for less than it is worth has made a transfer other creditors can attack. Texas Business and Commerce Code 24.006, Fla. 726.106 and C.R.S. 38-8-106 all reach transfers made without reasonably equivalent value. In bankruptcy, a trustee can look back two years for those transfers under 11 U.S.C. 548(a)(1)(B). Under 11 U.S.C. 547(b), a transfer to a creditor on an old debt within 90 days of filing can be undone if it gave that creditor more than a liquidation would. That is why the math belongs in the file. The same lender article warns that creditors' rights coverage is hard to get from title insurers, so do not count on a policy. If the owner mentions bankruptcy or is on active duty, call the attorney before anything is signed.

What the agreement should say

Use a short written agreement plus the deed, both drafted by the attorney. It should cover: - Who signs. Every owner on title and any spouse. For an estate, the person with court authority. - What is released. The assessments, fees and interest by date and amount. - What stays. The liens the association is taking subject to. - Possession. A move-out date, keys and the condition of the property. - Absolute transfer. No buy-back and no leaseback unless the attorney clears it. Wording the attorney can adapt: "Owner signs this deed voluntarily, had the chance to consult a lawyer and a tax professional, and understands that the conveyance is absolute. Owner has no right to reacquire the property." Give no tax advice. IRS Publication 4681 treats a voluntary conveyance in lieu of foreclosure as an exchange of property to satisfy a debt, so the owner may have a gain or loss to report. Ask your CPA how to book the released debt and whether the association has any filing to make.

The vote and a sample timeline

Record the final vote by lot number. A motion to adapt: "I move that the board authorize the president to accept a deed to Lot [number] in exchange for releasing $[amount] in assessments, on the terms in the attorney's agreement dated [date], subject to a clear title report and an owner's title policy." A director who is the owner or a relative does not vote. - Week 1: owner offers the deed. Treasurer sends a payoff figure. - Week 2: order the title report and a broker's opinion or appraisal. - Week 3: treasurer's one-page numbers go to the board and attorney. - Week 4: board votes. If yes, the owner gets time to review the agreement. - Week 6: sign, buy insurance, and record the deed. Once the association owns the lot, its dues stop arriving as cash, and taxes, insurance and upkeep become association costs. In Colorado, 38-33.3-310(4) says votes allocated to a unit the association owns may not be cast, so recheck quorum counts. Our guide on what to do when the HOA ends up owning a home covers carrying, selling and the Form 1120-H income test. Our guide on recording and releasing an assessment lien covers the release.

Mistakes boards make

Taking the deed before the title report. The board learns about the second mortgage and the tax lien when it tries to resell. Letting a sad story set the price. A board that wants to help can end up taking $80,000 of an owner's equity. Point the owner to a broker and a housing counselor. Promising a way back. In Texas it can void the deed, and elsewhere it invites a claim that the deed was really a loan. Writing off the debt without a paper trail. Keep the appraisal, title report, agreement, recorded deed and minutes together, at least through the two-year bankruptcy look-back.

Sources

These guides are general education for HOA boards and residents, not legal, tax, or financial advice. Rules vary by state and by your community's governing documents - check with a professional for your situation.

More on dues & money

Or browse all hoa dues, fees & money guides.