Legal Question in Real Estate Law in California

First off, if you are being sued, you have to defend, or you will lose and have a judgment taken against you "by default," whether the case has merit or not.

Next, I'd say you probably do owe the HOA and it probably has a valid suit against you. Junior liens are not satisfied by loss of the collateral when a senior lienholder forecloses and the sale proceeds are insufficient. Instead, the junior lienholder becomes an unsecured creditor and can sue you directly, free from any duty to pursue the (now-nonexistent) collateral.

This is a very broad and general statement of the law, and there may be unusual circumstances in particular cases, including yours.